It was another great quarter for Dolby Laboratories (DLB). Dolby announced the financial results for the third quarter handily beating analyst expectations. The company reported an EPS of $0.44 compared to an EPS of $0.40 a year ago. Analysts were expecting an EPS of $0.31 a share on revenues of $147.2 million. It should be noted that revenues in the quarter included approximately $22 million from prior period shipment.
More importantly, Dolby revised its guidance for the current financial year. The company now expects to report revenue in the range of $700 million to $715 million compared to its previous outlook of $650 million to $700 million. It expects an EPS of $2.01 to $2.06, up from its previous guidance of $1.76 to $1.91 a share.
The increased quarterly revenue and earnings were primarily due to the better than expected licensing revenue which is its highest margin source. As I noted in a previous article, Dolby boasts an industry leading gross margin of 88.5%.
Based on the last few quarterly results, I am projecting revenues of $704 million and an EPS of $2.02. For the financial year 2010, I am initiating a revenue estimate of $770 million and an EPS estimate of $2.17. I am also revising my price 12-month target from $44 a share to $50 a share by applying a P/E of 23 to my 2010 EPS estimate. At these levels Dolby would be trading towards the low end of its historic multiples.
Disclosure: Long DLB
Thursday, July 30, 2009
Wednesday, July 22, 2009
Hansen Natural Should Energize Your Portfolio
According to the Beverage Marketing Corporation, the alternative beverage segment is the fastest growing category of the beverage industry. One company from this segment that I particularly like is Hansen Natural Corporation (HANS). It develops, markets, sells, and distributes alternative beverage category natural sodas, energy drinks (including the popular Monster energy drinks), non-carbonated iced-tea, etc.
Hansen Natural in many ways epitomizes the strong growth in the alternative beverage segment, boasting an impressive 40 percent annual growth rate over the last five years. During the 13 weeks through January 24, 2009, Neilsen reports that at all convenience, grocery, drug and mass outlets (excluding Wal-Mart), Monster grew by approximately 14 percent while the energy drink segment grew by 8 percent. This outperformance continued through May of this year with industry sales declining 4.6 percent while HANS grew 0.2 percent.
Apart from the growth in the US market, HANS has several opportunities for growth in the European and Australian markets. It has signed Valentino Rossi, the World Champion MotoGP racer, as its brand ambassador. Rossi might not be a household name in US, but he is immensely popular in the Europe and Australia. This association with Rossi offers great potential in my opinion. Continuing its strategy of using motor sports for marketing purposes, HANS also sponsors Motocross teams in Europe which has helped in creating brand awareness in those markets.
The stock has been trending lower for the last few months falling from a high of $44 a share to its current price of $29 a share. It has significantly lagged the performance of the S&P00 index during this period and I view these price levels as an attractive opportunity to accumulate these shares for the long term.
HANS has an immaculate balance sheet with zero debt. Like most of my other stock selections, HANS has historically maintained strong financials and these are shown below:
* Market Cap = $2.6 Billion
* Sales = $1066 Million
* EPS = $1.23
* Net Profit Margin = 11.3%
* Debt to Equity ratio = 0.00
* Return on Equity = 25.8%
* Current Ratio = 4.89
Valuation:
Current and Projected Earnings
TTM EPS = $1.23
TTM P/E = 23.6
2009 EPS average analyst estimate = $2.26
My 2009 EPS estimate = $2.21
Fair value calculation was performed using relative valuation and discounted cash flow analysis. Relative valuation for HANS was performed by comparing HANS to its peer group and the S&P500 index. The results are presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.
Based on a PEG analysis, assuming a long term growth rate of 12 percent, the fair value for HANS is $33 a share. Finally, my DCF model, assuming a discount rate of 12%, indicates a fair value of approximately $32 a share.
The Call:
I am initiating coverage of Hansen Natural with a BUY rating and a 12-month price target of $40 a share by applying a P/E of 18 to my 2009 EPS estimate. At these levels HANS would be trading at a significant discount to its historic multiples, but on par with the S&P 500 index.
Disclosure: The author did not have a position in HANS at the time of posting. He will buy shares of Hansen Natural for his personal account three days after this article is posted.
Hansen Natural in many ways epitomizes the strong growth in the alternative beverage segment, boasting an impressive 40 percent annual growth rate over the last five years. During the 13 weeks through January 24, 2009, Neilsen reports that at all convenience, grocery, drug and mass outlets (excluding Wal-Mart), Monster grew by approximately 14 percent while the energy drink segment grew by 8 percent. This outperformance continued through May of this year with industry sales declining 4.6 percent while HANS grew 0.2 percent.
Apart from the growth in the US market, HANS has several opportunities for growth in the European and Australian markets. It has signed Valentino Rossi, the World Champion MotoGP racer, as its brand ambassador. Rossi might not be a household name in US, but he is immensely popular in the Europe and Australia. This association with Rossi offers great potential in my opinion. Continuing its strategy of using motor sports for marketing purposes, HANS also sponsors Motocross teams in Europe which has helped in creating brand awareness in those markets.
The stock has been trending lower for the last few months falling from a high of $44 a share to its current price of $29 a share. It has significantly lagged the performance of the S&P00 index during this period and I view these price levels as an attractive opportunity to accumulate these shares for the long term.
HANS has an immaculate balance sheet with zero debt. Like most of my other stock selections, HANS has historically maintained strong financials and these are shown below:
* Market Cap = $2.6 Billion
* Sales = $1066 Million
* EPS = $1.23
* Net Profit Margin = 11.3%
* Debt to Equity ratio = 0.00
* Return on Equity = 25.8%
* Current Ratio = 4.89
Valuation:
Current and Projected Earnings
TTM EPS = $1.23
TTM P/E = 23.6
2009 EPS average analyst estimate = $2.26
My 2009 EPS estimate = $2.21
Fair value calculation was performed using relative valuation and discounted cash flow analysis. Relative valuation for HANS was performed by comparing HANS to its peer group and the S&P500 index. The results are presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.
Valuation
| | Hansen Natural | ||
| Existing | Average | Fair Value | |
| P/E | 23.6 | 31.6 | $39 |
| (P/E) / (P/E – Peers) | 1.19 | 1.51 | $37 |
| (P/E) / (P/E – S&P 500) | 1.26 | 1.54 | $36 |
Based on a PEG analysis, assuming a long term growth rate of 12 percent, the fair value for HANS is $33 a share. Finally, my DCF model, assuming a discount rate of 12%, indicates a fair value of approximately $32 a share.
The Call:
I am initiating coverage of Hansen Natural with a BUY rating and a 12-month price target of $40 a share by applying a P/E of 18 to my 2009 EPS estimate. At these levels HANS would be trading at a significant discount to its historic multiples, but on par with the S&P 500 index.
Disclosure: The author did not have a position in HANS at the time of posting. He will buy shares of Hansen Natural for his personal account three days after this article is posted.
Monday, June 15, 2009
Thompson Creek Raises Production Guidance; Pullback Is Buy Opportunity
n an article dated June 7, 2009, based on the increasing demand for molybdenum, I predicted that Thompson Creek Metals Company (TC) would announce actual molybdenum production near the high end of its 2009 forecast. Just a day later, on June 8, Thompson Creek stated in a press release that it was making operational improvements and now expected to produce between 22 million and 26 million pounds of molybdenum, revised from a previous estimate of 20 to 24 million pounds. Further, it reduced its 2009 cash production estimate from a previous guidance of $6.25 to $7.25 a pound to a revised estimate of $5.75 to $7 a pound. It should be noted that the production cost estimates were reduced once before on May 7, 2009 when TC declared its 1st quarter results.
Based on this update from TC, I have revised by estimates for the current financial year. Assuming an average molybdenum price of $10 a pound for the rest of the financial year, a production of 24 million pounds and cash production costs of $6.5 a pound, I now expect Thompson Creek to report an EPS of $0.34. My 2010 EPS estimate remains unchanged ($1.10).
As mentioned in my previous article, my current price target for TC is $13 a share. With TC trading at approximately $12 a share, I would not add to my position at these levels. During the last month, the stock price has increased by approximately 54%. With the projected weakness in the markets (some analysts predict a 10% correction), TC can be expected to give back some gains and I see such a pullback as a buying opportunity. At these levels, I am downgrading my rating of TC from BUY to HOLD.
Disclosure: Long TC
Based on this update from TC, I have revised by estimates for the current financial year. Assuming an average molybdenum price of $10 a pound for the rest of the financial year, a production of 24 million pounds and cash production costs of $6.5 a pound, I now expect Thompson Creek to report an EPS of $0.34. My 2010 EPS estimate remains unchanged ($1.10).
As mentioned in my previous article, my current price target for TC is $13 a share. With TC trading at approximately $12 a share, I would not add to my position at these levels. During the last month, the stock price has increased by approximately 54%. With the projected weakness in the markets (some analysts predict a 10% correction), TC can be expected to give back some gains and I see such a pullback as a buying opportunity. At these levels, I am downgrading my rating of TC from BUY to HOLD.
Disclosure: Long TC
Monday, June 8, 2009
Diamond Offshore and Noble Corp: Drilling Profits
Investing in the offshore drilling sector has been my preferred method of gaining exposure to the oil and natural gas industry and profiting from the projected increase in price. Offshore drilling contracts are generally long term and therefore provide the companies with some level of visibility into future earnings. Further the business can be extremely profitable across a wide range of oil prices and is to a certain extent not dependant on the variation in the price of oil and gas.
In this article, I will compare the fundamentals and the valuations of the two major contract drilling companies, namely Diamond Offshore Drilling Inc. (DO) and Noble Corporation (NE). Another major offshore driller, Transocean (RIG) (debt to equity ratio = 0.72), was not considered in this analysis as it did not meet my low debt requirements.
The table that follows presents the fleet composition of the two companies.
Fleet Composition
| Type | DO | NE |
| Semisubmersible Rigs | 30 | 13 |
| Submersible Rigs | 0 | 3 |
| Drillships | 1 | 4 |
| Jackup Rigs | 15 | 43 |
| Total | 46 | 63 |
Diamond Offshore and Transocean (77 floaters) have one of the largest deepwater drilling fleets (semisubmersible rigs) in the world. Analyst expect the deepwater drilling sector to grow faster than the overall oil and natural gas drilling sector which should benefit these companies.
The table that follows provides the company fundamentals for Diamond Offshore and Noble Corp.
Company Fundamentals
| | DO | NE |
| Market Cap (Billions) | $12.12 | $9.22 |
| Sales (Billions) | $3.64 | $3.48 |
| Income (Billions) | $1.37 | $1.59 |
| Net Profit Margin | 37.6% | 45.7% |
| Return on Assets | 28% | 23.6% |
| P/E | 8.90 | 5.90 |
| Projected 5 Year Growth Rate | 20% | 10% |
| Current Ratio | 2.29 | 2.61 |
| LT Debt to Cap | 0.15 | 0.13 |
| Institutional Ownership | 95% | 25% |
| % Price Change YTD* | 48% | 60% |
The EPS estimates for the two companies are shown the table that follows:
Earnings Estimate
| | DO | NE |
| TTM EPS | $9.84 | $6.02 |
| 2010 Average Analyst EPS Estimate | $9.80 | $5.50 |
| 2010 My EPS Estimate (Conservative) | $9.50 | $5.35 |
Using the data from the last four financial years, relative valuation was performed for the two companies and the obtained fair value is shown the table that follows:
Fair Value Calculation
| | DO | NE | ||||
| Existing | Average | Fair Value | Existing | Average | Fair Value | |
| P/E | 8.86 | 20.78 | $214 | 5.98 | 16.36 | $104 |
| P/S | 3.33 | 5.92 | $155 | 2.64 | 4.78 | $64 |
| (P/E) / (P/E – Peers) | 1.34 | 1.24 | $84 | 0.91 | 0.87 | $36 |
| (P/E) / (P/E – S&P 500) | 0.50 | 0.94 | $170 | 0.34 | 0.73 | $82 |
The Call:
Diamond Offshore
I am initiating coverage of DO with a HOLD rating and a 12-month price target of $95. At these levels, DO would be trading at a P/E of 10 representing a 50% discount to its historic levels, but at a premium to its offshore drilling peers. This premium is warranted owing the projected growth rate and the dividend offered by DO. The company has been declaring a quarterly dividend of $1.88 a share yielding 8% a year.
Noble Corporation
I am initiating coverage of NE with a BUY rating and a 12-month price target of $45 derived by applying a multiple of seven to my 2010 EPS estimate. At these levels, NE would be trading on par with its peers.
Disclosure: The author was long DO at the time of posting.
Sunday, June 7, 2009
Thompson Creek: A Molybdenum Stock to Strengthen Your Portfolio
Thompson Creek Metals Company (TC) is a Canadian mining company and is one of the largest pure molybdenum producers in the world. Molybdenum is alloyed with steel making the steel stronger and is widely used in the iron and steel industry. With declining steel demand owing to the global recession, the price of molybdenum fell from approximately $34 a pound to just under $8 a pound in the last quarter of last year and the during the first quarter of the current financial year.
Thompson Creek was adversely affected by the sharp decline in prices and resorted to production cuts in response to lower molybdenum demand. In January, it announced that its molybdenum production was expected to be in the range of 20 to 24 million pounds in 2009, revised from previous guidance of 31.5 to 34 million pounds. This was in line with the 10 million pound production cut announced by Freeport-McMoRan (FCX), the largest producer of molybdenum in the world.
On May 7, 2009, Thompson Creek declared financial results for the first quarter 2009 with an EPS of $0.09, down from $0.41 in first quarter 2008. It reaffirmed its production guidance and reported a decline in its average cash production costs in the first quarter from $8.29 per pound a year earlier to $5.93 per pound. It also reduced its cash production costs estimate for the current financial year to $6.25 to $7.25 per pound from previous guidance of $7.25 to $8.25 per pound. Further, the company announced that it was ready to modify its production and adjust to the market conditions if and when the situation improved.
With the sharp rebound in commodity prices in May, molybdenum has shown signs of recovery. Molybdenum has risen approximately 25% from its lows and is currently priced at little over $10 a pound. This increase, altough impressive, trails the percentage increase in price witnessed by several other commodities such as copper and oil. Thompson Creek has benefited from this rebound in commodity prices and the changing market sentiment with its stock rallying from a 52-week low of $2.44 a share to $10 a share. However, this is substantially lower than the 52-week high of $21.98 a share and I believe that the stock price can go higher from these levels.
Thompson Creek has a strong balance sheet with $260.6 million in cash, cash equivalents and short term investments and a total debt of $16.9 million at the end of the first quarter. Key financial information for TC is shown below:
- Market Cap = $1.2 billion
- Sales (TTM) = $835.5 million
- EPS (excluding extraordinary items) = $1.09
- Net Profit Margin = 17.7%
- Debt to Equity ratio = 0.01
- Return on Equity = 21.9%
- Current Ratio = 10.03
Analysts expect Thompson Creek to earn $0.07 a share during the current financial year and $0.94 a share during the 2010 financial year. These estimates are very conservative in my opinion and do not account for rising price of molybdenum and operational efficiencies at Thompson Creek.
During the current financial year, I expect the company to report actual production numbers towards the high end of its guidance. Assuming an average molybdenum price of $10 a pound for the rest of the financial year, a production of 23 million pounds, and cash production costs of $7 a pound, I expect Thompson Creek to report an EPS of $0.28. With improving molybdenum price and expanding production at Thompson Creek, I estimate a 2010 EPS of $1.10.
Based on my DCF model, assuming a long term growth rate of 10% and a discount rate of 15%, the fair value of TC is approximately $12 a share. On a relative valuation basis, I project a fair value of $14 a share by applying a multiple of 13 to my 2010 earnings estimate. By combining the two values, I am initiating coverage of Thompson Creek with a BUY rating and a 12-month price target of $13 a share.
Disclosure: Long TC
Monday, June 1, 2009
Dolby: Buying Opportunity in a 'Best of Breed' Sound Company
On April 30, 2009, Dolby Laboratories (DLB) declared financial results for the second quarter 2009 reporting an EPS of $0.60 (Call Transcript). Not surprisingly, the results were ahead of street expectations of $0.46. Further, Dolby tightened the full year earnings outlook and now expects to earn between $1.76 and $1.91 a share. Previously, it had forecast an EPS in the range of $1.66 to $1.91. At close, the stock was trading at approximately $41 a share.
In the past month, despite the absence of any major development, the stock has lost more than 10% of its value and currently trades just above $36. I believe that this offers an opportunity to accumulate shares of a ‘best of the breed’ sound technologies company.
Dolby has an impeccable balance sheet with a debt to equity ratio of less than 0.01. It finished the second quarter with approximately $810 million in cash and other marketable securities. Dolby has historically maintained strong financials and boasts an industry leading gross margin of 88.5%. Key financial information for Dolby is shown below:
* Market Cap = $4.1 Billion
* Sales = $701.8 Million
* EPS = $2.11
* Net Profit Margin = 34.8%
* Debt to Equity ratio = 0.01
* Return on Equity = 22.6%
* Current Ratio = 4.90
Dolby has several avenues for growth. During the past 5-years, Dolby grew its earnings at an annual rate of approximately 37%. Analysts expect a growth rate of 17% for the next 5 years. This growth is conservative in my opinion.
I anticipate revenue growth coming primarily from the European and Asian markets. At the end of last year, about 20% of the total European television shipments contained Dolby technology. The company projects to increase this number to about 33% by the end of the year. Dolby is currently in negotiations with several countries in Europe to adopt technologies from Dolby as standards. It is also looking into expanding in Asia which should support a higher growth rate.
Dolby is also making huge strides in mobile business with Dolby Mobile being used by carriers such as Vodafone (VOD) and Orange to deliver audio for multimedia files. Dolby is in the process of expanding in this area by negotiating deals with other carriers, handsets and mobile service providers.
Valuation:
Current and Projected Earnings
TTM EPS = $2.11
TTM P/E = 17.1
2009 EPS estimate - average = $1.89
2010 EPS estimate - average = $1.90
The Call:
I am initiating coverage of Dolby Laboratories with a BUY rating and a 12-month price target of $44. At these levels DLB would be at a P/E of 23 modestly below its historic multiples.
Disclosure: Long DLB
In the past month, despite the absence of any major development, the stock has lost more than 10% of its value and currently trades just above $36. I believe that this offers an opportunity to accumulate shares of a ‘best of the breed’ sound technologies company.
Dolby has an impeccable balance sheet with a debt to equity ratio of less than 0.01. It finished the second quarter with approximately $810 million in cash and other marketable securities. Dolby has historically maintained strong financials and boasts an industry leading gross margin of 88.5%. Key financial information for Dolby is shown below:
* Market Cap = $4.1 Billion
* Sales = $701.8 Million
* EPS = $2.11
* Net Profit Margin = 34.8%
* Debt to Equity ratio = 0.01
* Return on Equity = 22.6%
* Current Ratio = 4.90
Dolby has several avenues for growth. During the past 5-years, Dolby grew its earnings at an annual rate of approximately 37%. Analysts expect a growth rate of 17% for the next 5 years. This growth is conservative in my opinion.
I anticipate revenue growth coming primarily from the European and Asian markets. At the end of last year, about 20% of the total European television shipments contained Dolby technology. The company projects to increase this number to about 33% by the end of the year. Dolby is currently in negotiations with several countries in Europe to adopt technologies from Dolby as standards. It is also looking into expanding in Asia which should support a higher growth rate.
Dolby is also making huge strides in mobile business with Dolby Mobile being used by carriers such as Vodafone (VOD) and Orange to deliver audio for multimedia files. Dolby is in the process of expanding in this area by negotiating deals with other carriers, handsets and mobile service providers.
Valuation:
Current and Projected Earnings
TTM EPS = $2.11
TTM P/E = 17.1
2009 EPS estimate - average = $1.89
2010 EPS estimate - average = $1.90
Relative Valuation
Fair value calculation was performed using relative valuation. The estimated fair value using various methods is presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.
Valuation
| | Dolby | ||
| Existing | Average | Fair Value | |
| P/E | 17.11 | 26.27 | $49 |
| P/S | 5.81 | 6.35 | $39 |
| P/FCF | 15.27 | 23.53 | $55 |
| (P/E) / (P/E – S&P 500) | 1.00 | 1.25 | $41 |
The Call:
I am initiating coverage of Dolby Laboratories with a BUY rating and a 12-month price target of $44. At these levels DLB would be at a P/E of 23 modestly below its historic multiples.
Disclosure: Long DLB
Friday, May 29, 2009
Corning - Better Days Ahead
Corning (GLW) is one of the core holdings in my long term portfolio. Established in 1851, Corning occupies a leadership position in all the major markets in which it participates.
Corning is a technology based corporation and is a global leader in display technologies and high fiber optics. It produces glass components, such as substrates for active matrix liquid crystal displays (LCDs), for use in LCD televisions, notebook computers and desktop monitors. It also manufactures optical fiber and cable, and hardware and equipments products for the telecommunication industry. Additionally, Corning operates in other segments such as environmental technologies and provides solutions for emission control in mobile and stationary applications.
Corning reports financial results in the following five major segments:
Corning’s business is built on innovation and Corning has excelled in this area. As an example, glass substrate innovations at Corning have helped reduce the cost of LCD televisions thereby increasing TV sales. This in turn has increased the demand for Corning products.
An unexpected change in consumer demand is aiding Corning’s strong recovery. On May 28, Corning reported a better than expected increase in demand for its LCD glass. Additionally, last month, Corning raised its guidance of glass sales from 2 billion square feet in 2008 to approximately 2.2 billion square feet in 2009. It also doubled its forecast for growth of LCD television units from 9% to 18%. This indicates the improving conditions of the Asian and US consumer (Corning derives more than 50% of its revenue from Asia).
Corning has a solid balance sheet with $2.8 Billion in cash and $1.6 Billion in debt at the end of 2008. It pays a quarterly dividend of 5 cents yielding 1.4% a year.
The table that follows presents the company fundamentals.
During the last five years, Corning increased its revenue at an annual rate of 14%. Analysts estimate that Corning would continue to grow at an annual rate of 14% which is in line with its peers and higher than the projected annual growth rate of 10% for the S&P 500 index. The EPS estimates for the Corning are shown below:
Fair value calculation was performed using relative valuation. The estimated fair value using various methods is presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.
Valuation
The Call:
I am initiating coverage of Corning with a BUY rating and a 12-month price target of $18 derived by applying a multiple of 15 to 2010 average analyst EPS estimates. At these levels, GLW would be trading in line with the S&P500 index, and at a slight discount to its historic PEG ratio.
Disclosure: Long GLW
Corning is a technology based corporation and is a global leader in display technologies and high fiber optics. It produces glass components, such as substrates for active matrix liquid crystal displays (LCDs), for use in LCD televisions, notebook computers and desktop monitors. It also manufactures optical fiber and cable, and hardware and equipments products for the telecommunication industry. Additionally, Corning operates in other segments such as environmental technologies and provides solutions for emission control in mobile and stationary applications.
Corning reports financial results in the following five major segments:
| Segment | Percentage of Sales (2008) |
| Display Technology Segment | 46% |
| Telecommunication Segment | 30% |
| Environmental Technology Segment | 12% |
| Specialty Materials Segment | 6% |
| Life Sciences Segment | 6% |
Corning’s business is built on innovation and Corning has excelled in this area. As an example, glass substrate innovations at Corning have helped reduce the cost of LCD televisions thereby increasing TV sales. This in turn has increased the demand for Corning products.
An unexpected change in consumer demand is aiding Corning’s strong recovery. On May 28, Corning reported a better than expected increase in demand for its LCD glass. Additionally, last month, Corning raised its guidance of glass sales from 2 billion square feet in 2008 to approximately 2.2 billion square feet in 2009. It also doubled its forecast for growth of LCD television units from 9% to 18%. This indicates the improving conditions of the Asian and US consumer (Corning derives more than 50% of its revenue from Asia).
Corning has a solid balance sheet with $2.8 Billion in cash and $1.6 Billion in debt at the end of 2008. It pays a quarterly dividend of 5 cents yielding 1.4% a year.
The table that follows presents the company fundamentals.
Company Fundamentals
| | GLW |
| Market Cap (Millions) | $22,000 |
| Sales (Millions) | $5,320 |
| EPS | $2.66 |
| Net Profit Margin | 57% |
| Return on Equity | 36% |
During the last five years, Corning increased its revenue at an annual rate of 14%. Analysts estimate that Corning would continue to grow at an annual rate of 14% which is in line with its peers and higher than the projected annual growth rate of 10% for the S&P 500 index. The EPS estimates for the Corning are shown below:
EPS Estimates
| | GLW |
| TTM EPS | $2.66 |
| 2009 Average EPS Estimate | $0.86 |
| 2010 Average EPS Estimate | $1.19 |
Fair value calculation was performed using relative valuation. The estimated fair value using various methods is presented in the table that follows. It should be noted that the data from the last four financial years was taken in calculating the averages shown in the table.
Valuation
| | GLW | ||
| Existing | Average | Fair Value | |
| P/E | 5.35 | 22.86 | $20 |
| P/S | 4.15 | 5.45 | $19 |
| (P/E) / (P/E – S&P 500) | 0.32 | 1.00 | $14 |
| PEG | 0.85 | 1.14 | $14 |
The Call:
I am initiating coverage of Corning with a BUY rating and a 12-month price target of $18 derived by applying a multiple of 15 to 2010 average analyst EPS estimates. At these levels, GLW would be trading in line with the S&P500 index, and at a slight discount to its historic PEG ratio.
Disclosure: Long GLW
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