On Thursday, Texas Instruments held a Webcast to update its Capital Management Strategy, and raised its targeted free cash flow range to 20% to 30% of revenue. Previously, the Dallas-based firm had targeted 20% to 25% of revenue. Texas Instruments sees "quite a bit of room" to continue buying back shares, Theflyonthewall.com reported.
Analysts welcomed the new free cash flow target. Jefferies, which has a 'buy' rating on the company, raised its price target to $52 from $50 following the announcement. Companies such as Intel (INTC), On Semiconductor (ONNN) and Xilinx (XLNX) could make similar moves, according to Jefferies analyst Mark Lipacis.
"We believe investors will continue to reward companies that emulate TXN's best practices with premium multiples, just as they have with TXN. We think INTC, ONNN, and XLNX are best positioned to surprise on capital return, he wrote."
BMO Capital Markets also raised its Texas Instruments price target to $50 from $43. "We continue to rate TXN outperform," wrote BMO analyst Ambrish Srivastava, noting that the new strategy is a sign of confidence in Texas Instruments' business model.
Free cash flow is crucially important for generating healthy dividends and share repurchases. Texas Instruments' free cash flow for the full year of 2013 was $3 billion, or 24% of revenue. The company returned just over $4 billion to shareholders in the form of dividends and share repurchases during fiscal 2013.