Bear Stearns Comments on Motorola (MOT)
Tweet
Share
E-mailGet Alerts MOT Hot Sheet
Price: $9.11 --0%
Rating Summary:
4 Buy, 4 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 33 | Down: 45 | New: 4
Rating Summary:
4 Buy, 4 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 33 | Down: 45 | New: 4
Join SI Premium – FREE
CONTRIBUTOR http://notablecalls.blogspot.com
Bear Stearns notes that given the volatility in Motorola (NYSE: MOT) shares after its earnings miss and activist interest they've revisited their MOT valuation. After reviewing a variety of scenarios and valuation metrics including DCF, LBO, buybacks, and sum-of-the-parts they see a fair value range of $23-25 per share compared to the $19.73 closing price Tuesday.
After operating margins dropped from 11% to 7% q/q, firm's $23-25 range is based on mgmt's guidance to an OM rebound in 2H07 and long term margins in the 10-12% range. However, MOT's challenge in replacing RAZR and iDEN cash flow is huge and justifies a discount to peers. They expect continued volatility in the near term including a rough 1H06.
A big question is whether MOT (and tech in general) can handle more debt. Bear believes that from ~2x net cash today MOT could certainly buy stock back faster, and may be already. Were MOT to lever net debt to 2x EBITDA it could buy back ~1/3 of equity. While accretive on an EPS basis, they believe this may leave many tech investors unwilling to hold the stock. Recent tech LBO's though indicate that private equity firms may consider a run, but MOT's size could present a challenge.
Although handsets have seen strong, steady growth for 4+ years the firm believes there is still potential for a downturn in the business which could leave a debt-laden company impaired. However unlikely, the prospect of having to reduce R&D to make interest payments could make a cyclical downturn permanent. Connected Home and the gov't bus offer some diversification from MOT's handset business (still ~2/3 of cash flow) and they believe are better within the company than sold off.
Maintains Peer Perform.
Notablecalls: Considering I issued a short sell call on MOT yesterday, I thought it was important to highlight any subsequent broker chatter on it. The stock declined $0.30-$0.35 after the open but found some buy interest in the afternoon following chatter Carl Icahn is beginning to circle the boat in a more aggressive manner. Tight leash.
For more calls go to http://notablecalls.blogspot.com
Bear Stearns notes that given the volatility in Motorola (NYSE: MOT) shares after its earnings miss and activist interest they've revisited their MOT valuation. After reviewing a variety of scenarios and valuation metrics including DCF, LBO, buybacks, and sum-of-the-parts they see a fair value range of $23-25 per share compared to the $19.73 closing price Tuesday.
After operating margins dropped from 11% to 7% q/q, firm's $23-25 range is based on mgmt's guidance to an OM rebound in 2H07 and long term margins in the 10-12% range. However, MOT's challenge in replacing RAZR and iDEN cash flow is huge and justifies a discount to peers. They expect continued volatility in the near term including a rough 1H06.
A big question is whether MOT (and tech in general) can handle more debt. Bear believes that from ~2x net cash today MOT could certainly buy stock back faster, and may be already. Were MOT to lever net debt to 2x EBITDA it could buy back ~1/3 of equity. While accretive on an EPS basis, they believe this may leave many tech investors unwilling to hold the stock. Recent tech LBO's though indicate that private equity firms may consider a run, but MOT's size could present a challenge.
Although handsets have seen strong, steady growth for 4+ years the firm believes there is still potential for a downturn in the business which could leave a debt-laden company impaired. However unlikely, the prospect of having to reduce R&D to make interest payments could make a cyclical downturn permanent. Connected Home and the gov't bus offer some diversification from MOT's handset business (still ~2/3 of cash flow) and they believe are better within the company than sold off.
Maintains Peer Perform.
Notablecalls: Considering I issued a short sell call on MOT yesterday, I thought it was important to highlight any subsequent broker chatter on it. The stock declined $0.30-$0.35 after the open but found some buy interest in the afternoon following chatter Carl Icahn is beginning to circle the boat in a more aggressive manner. Tight leash.
For more calls go to http://notablecalls.blogspot.com
You May Also Be Interested In
- Citi Downgrades Legal & General Group PLC (LGEN:LN) (LGGNF) to Sell
- Seaport Global Securities Downgrades FOX Corp. (FOXA) to Neutral
- Wedbush Upgrades Airbnb Inc. (ABNB) to Outperform 'on Broad Strength & New Initiative Positives'
Create E-mail Alert Related Categories
Analyst Comments, ContributorsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
