Equity research notes on Texas Instruments and TripAdvisor with fiscal outlook and catalyst analysis

see the most uplift in spending from any potentially large fiscal stimulus and infrastructure spending under the new US administration. Tax Policy: Unlike most semis, TXN reports its financials on a pure GAAP basis and its tax rate at 30% is one of the highest in the industry. We think TXN stands to disproportionately benefit from the looser tax policies foreshadowed by the upcoming administration. Specifically, a 10% drop in the corporate tax rate would lead to 15% higher EPS for TXN in 2017, all else equal. Catalysts: (1) Seasonally stronger period for industrial/automotive spending — 46% of TXN’s revenue come from these end markets; (2) Annual strategy and capital allocation policy update call with shareholders which is likely to occur at the beginning of February. Latest report: The new "industrials": growth recovery plus pricing power, Buy TXN, ADI, MCHP, ON 1Q risks: (1} Still somewhat large (>10%) exposure to consumer electronics could create near-term volatility in topline results; (2) Historically lumpy communications equipment spending trends; (3) Larger than expected slowdown in North America automotive unit production Company Description: Texas Instruments is a broad-based supplier of semiconductor components, ranging from digital signal processors, to high-performance analog components, to digital light-processing technology and calculators. 65% of TXN sales are exposed to the well diversified, business-to-business Industrial, Automotive, Communications Infrastructure, and Enterprise markets. TripAdvisor (TRIP) Nat Schindler +1 415 676 3574 Research Analyst, MLPF&S Underperform, PO $41 1Q investment thesis Despite easier y/y comps in 2017, we see risk that Click-based & Transaction Hotel revenue continues to decline as 1) higher monetizing desktop traffic structurally declines, 2) mobile monetization remains at 30% of desktop traffic and is unlikely to meaningfully close the gap, and 3) Instant Book is unlikely to help reverse the revenue and earnings trend. At the same time, TRIP has been accelerating marketing spend, implying increasing acquisition costs, with further ad spend ramp in ‘17. TRIP noted 2017 EBITDA margin will decline further from 2016 levels as ad spend ticks up to re- accelerate growth. Table 1: TripAdvisor key stock data Industry Online Travel Market Cap (mn) $9,071 Price $46.95 P/E (2017) 32.5x % of sell-side rated Buy 14.3% Short interest % of float 10.30% Source: Bloomberg and BofA Merrill Lynch Global Research estimates BankofAmerica <2” 14 Top 10 US Ideas Quarterly | 03 January 2017 Merrill Lynch HOUSE_OVERSIGHT_014635