Texas Instruments dips as Raymond James downgrades on rising spending
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Texas Instruments (NASDAQ:TXN) shares dipped in premarket trading on Monday after Raymond James downgraded the semiconductor maker, noting its capital spending plans were higher than expected.
Analyst Chris Caso lowered his rating to market perform and took away his price target, noting that Texas Instrument, at its recent analyst day, said it would spend $3.5 billion every year through 2025, with 10% capital intensity thereafter.
"Most importantly, management remains adamant that this spending plan is independent of market conditions," Caso wrote in a note to clients. "Because of that level of immovable spending, the annual increase in depreciation offsets the gross profit on about the first 3% of annual revenue growth â a bit less than half of the expected 7% long term revenue growth. Our downgrade reflects our concern that this aggressive spending is occurring late in the cycle, which elevates the risk to earnings and cash flow when the cycle ends."
Texas Instruments shares fell nearly 1.5% to $162 in premarket trading on Monday.
In addition, Caso noted that Texas Instruments' management team explained that since spending will stay "elevated for an extended period of time," margins and free cash flow will be lower.
"TXNâs decision to embark on this aggressive investment program is similar to their prior strategic decisions over the past 15 years â exiting wireless, investing through the downturn in 2009, and exiting distribution," Caso explained.
"All those prior decisions were the right ones over time, so management has a track record of making good decisions.," Caso continued. "We think this one will turn out to be correct over time also." 
Last month, Texas Instruments reported fourth-quarter earnings that topped estimates significantly.