Texas Instruments (TXN) and BG Staffing (BGSF): Top Growth & Income Stock Picks

Texas Instruments TXN, a Zacks Rank #1 (Strong Buy) designs and manufactures semiconductor solutions for analog and digital embedded and application processing. It has two major segments: Analog & Embedded Processing. The Analog segment semiconductors change real-world signals such as sound, temperature, pressure or images, by conditioning them, amplifying them and often converting them to a stream of digital data that can be processed by other semiconductors, such as embedded processors. Embedded processing segment designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application.

Earnings Results

The company recently reported Q1 18 earnings results where they beat the Zacks consensus earnings and revenue estimates.  This was the ninth consecutive quarter where they either met or beat on both ends.  Overall, the results were quite impressive.  On a year over year basis, revenues rose by +11%, and EPS increased by +39%.  Further, the company posted a +19% improvement in cash flow from operations while free cash flows grew by +17%.  On a segment basis, Analog revenues increased by +14% while Embedded Processing revenues rose by +15%. 

Management cited high demand for its products in both the Industrial and Automotive markets, and broad-based order strength as the big drivers behind the impressive quarterly results. 

Most importantly for the long term outlook for the company, the Q1 results eased fears that semi demand was decelerating.  In the previous quarter there had been some concern that the semiconductor demand was hitting its peak cycle, but Q1’s performance, and strong Q2 guidance has eased those fears. 

Looking Ahead

Going forward, management’s Q2 EPS and revenue guidance was just above the midpoints of the consensus estimates; EPS now between $1.19-1.39, and revenues ranging from $3.78-4.1 billion.  Further, management commented that its operating tax rates would be lower for both 2019 and 2020 than previously expected; 16% for 2019 down from 18%, and 20% in 2018 down from 23%. 

Performance YTD vs. S&P 500

As you can see in the chart below, TXN has more than tripled the performance of the S&P 500 index since the beginning of the year.

Increasing Earnings Estimates

As you can see in the table below, earnings estimates have increased for Q2 18, Q3 18, FY 18 and FY 19 over the past 30 days.

Lastly, TXN has returned $5.1 billion to its shareholders over the past 12 months in the form of dividends, and share repurchases.  Moreover, the dividend payments represented 45% of free cash flows.  These payments to holders is expected to continue through 2018 as the company has several billion remaining in its repurchase program. Currently, TXN has an annual dividend yield of 2.24%

BG Staffing Inc. BGSF, a Zacks Rank #2 (Buy) is a national provider of temporary staffing services across a diverse set of industries. Its present business segments offer temp services in the Multi-Family, Professional and Commercial sectors. In the Multi-Family segment BG offers temporary workers that perform front office and maintenance personnel in 18 states (Nevada, Arizona, Colorado, Kansas, Oklahoma, Texas, Missouri, Wisconsin, Illinois, Tennessee, Georgia, Florida, N. Carolina, Virginia, Maryland, Pennsylvania, Massachusetts, Rhode Island); temporary skilled contract labor for Finance & Accounting and also for IT implementation and maintenance projects nationwide from offices in 5 states (Texas, Louisiana, N. Carolina, Maryland, Rhode Island); temp labor services in various skilled and unskilled positions to primarily distribution and logistics customers in its Commercial segment in 5 states (Texas, Wisconsin, Illinois, Tennessee, Mississippi).

The impressive employment numbers and current unemployment rate have brought staffing companies into focus.  We received two reports that confirmed the jobs situation this week; the ADP jobs report, and the initial jobless claims report.  The ADP announced that the private sector added 178,000 new jobs while jobless claims fell by 14,000.  The unemployment rate held steady at 3.9%, and remains on track to meet the Fed’s expected level of 3.8% by the end of 2018.

This means that the tight job market is expected to continue into 2019 which is great news for staffing firms as companies need help filling many open positions. 

BG Staffing is well positioned to take advantage of this situation as they fill many different job needs in a vast array of states.  The company’s success was seen in its last earnings report where revenues grew by +17.6% YoY, and net income jumped up by +89.4% when compared to the year ago quarter. 

L. Allen Baker Jr, President and CEO commented on the impressive quarterly results, “I'm very pleased with our 1st quarter 2018 financial results - they are a reflection of BG Staffing's unique value proposition, the solid performance from our recent acquisitions, and our disciplined approach to cost control. We met or exceeded our goals in every significant category.”

To add to all the positives surrounding BGSF, the company currently pays a +6.43% annual dividend yield, which is well above the S&P 500’s 1.85%.

Price and Earnings Consensus Graph

As you can see in the graph below the company has been doing very well since the second half of 2017, and its year over year consensus earnings estimates have risen as well.

Bottom line

The strong jobs and employment situation is a huge tailwind for the company, and is expected to remain a driver for the next several quarters.  Further, the company’s wide range of staffing services in a multitude of different states will enable it to capture several growing job sub-segments as more companies turn to staffing firms for their employment needs.

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