tim...i owe alot of my comeback this year to you ... it would be nice if you post more often...u know i am a big SQNT fan...its done exceedingly well and looks like its got a ways to go...i am long quite a bit and would never consider selling unless things go way bad...if SQNT can posts above expectation numbers, then we easily have a momemtum (in favor) stock that will go...if SQNT falls, i will trade the trend...i am confident about the support
well Linda, i am hesitant recommend but take this as just another investor's view thats all...sry about this folks...i am accumulating MENT and EXBT
1) MENT $9 3/4 (lucky to be in at $7.75): huge insider buys (including chairman 50,000 shares $6.75; CFO and others); low earnings expectation, good pe to historical earnings; right strategy about cycle time reduction; pushing asia hard; looks like they are over the integration of past acquisitions; zero long term debt; over $2 cash per share; solid growth in EDA; of course, they compete agst tough competitors like Cadence, synopsis, avant; they use to be number one now number 3; hoping for $16-18 by end of the year; all the other cos. have vry high valuations; MENT reports this monday
below is a excerpt by insidertrader (who i think has a pretty track record)
7/22/97
$8.81
Testing The Minute and Ethereal
"Without question, our 1996 financial results were a disappointment."
As candid as president Walden Rhines' words were, shareholders of
Mentor Graphics already knew as much. Their investment had dropped
from $16 to $10 during the year--and was about to go even lower. But
at least Mentor Graphics cannot be accused of being an inflexible
giant out of touch with its market. Staying at the forefront of the
technology curve has hurt Mentor's shareholders over the past year,
but the company's change in focus will likely pay dividends to
investors over the next 12 months.
As miniaturization became the goal of modern electronics, there arose
a demand for software which could help engineers design and test
their tiny creations without actually building them. Thus was born
the electronic design automation (EDA) industry, of which Mentor
Graphics, founded in 1981, was a pioneer member. It is also the only
original EDA company still in existence. Mentor profited handsomely
from its early entry into the field. Recently, however, competition
has escalated, and the electronics industry itself has drastically
changed. Mentor has decided to change as well, and is shifting its
focus away from traditional EDA, and towards a novel field called
Integrated Systems Design (ISD).
The ISD market is a "superset" of the traditional EDA business, and
is essentially a solution to the two emerging trends in modern
electronics: increasingly complex integrated circuits (ICs), and the
growing popularity of embedding software on these circuits. In the
relentless pursuit of ever more intricate ICs, Mentor has embraced
the ISD strategy of design reuse. Instead of attempting to design
millions upon millions of new transistor applications, engineers can
utilize previously designed and verified circuit layouts from
Mentor's library of intellectual property. To combat the
compatibility problems which continuously arise between ICs and their
accompanying embedded software, Mentor has developed
hardware/software co-design products. Both design re-use and
hardware/software co-design are expected to save time and money in
the electronic engineering process, while also focusing engineering
talent exclusively on value-added projects.
Mentor's transition from EDA to ISD has hardly been easy. In an
attempt to enhance its ISD offerings, Mentor engaged in nine business
combinations in 1996, which led to a $31.3 million charge against
earnings. Additionally, the company downsized in 1996 and redirected
certain operations leading to a further charge of $12 million against
earnings. These charges generated a $0.08 per share loss for Mentor
in 1996, which hardly looked good compared to the $0.78 per share
gain the company showed in 1995.
But even without the charges, earnings for 1996 would have come in at
only $0.52 per share--a 33% decline. Anemic 3.6% revenue growth in
1996 resulted from the fact that the rate of revenue decline from the
discontinued old products had yet to be offset by a corresponding
revenue increase from the newer ISD products. With 49% of Mentor's
revenues coming from abroad, the strong dollar didn't help either.
Lower margins from Mentor's new products sealed an earnings decline
in 1996. The same combination of blows knocked Mentor's first quarter
to the mat as well. Revenues declined 6.9% year-over-year, the gross
margin fell to 53% from 69.2%, and special charges of $8.6 million
again hacked away at the bottom line. The reported loss was $0.43 per
share.
Silver Lining
Hidden beneath these seemingly dismal financial results, however, are
some very positive elements. Although overall revenues and earnings
have been disappointing at Mentor, the newer products are already
showing promising growth. In 1996, revenues from these products
increased by 18% and represented over 50% of total revenues. The
first quarter of 1997 witnessed new product revenue growth of over
40%. If this trend continues, Mentor should be back in the
revenue-growth business in the next couple of quarters.
The hardware/software co-design market is, "showing significant
growth overall in the industry," according to analyst from Raj Seth
at Cowen & Company. Also, the recent alliance between Mentor and
Synopsys, an EDA giant, for the distribution of design reuse
technology gives further market penetration capabilities for Mentor's
intellectual property business, Inventra.
Another positive was the hiring of a new CFO, Gregory K. Hinckley,
back in January. Mr. Hinckley was the former CFO of VLSI technology,
a manufacturer of integrated circuits. Laura Conigliaro, an analyst
with Goldman, Sachs, feels that Hinckley "has an approach to
deliver," adding that "he understands that the game is not just about
getting the numbers in shape, but about getting the infrastructure in
shape." Already, Hinckley has improved the company's balance sheet by
using cash to pay down all of Mentor's $52.4 million in long-term
debt. Currently, Mentor is still sitting on $144 million in cash and
short-term investments, which equals $2.21 per share. Raj Seth also
considers Hinckley's appointment to be beneficial as Hinckley is from
outside the EDA industry and can hence, "offer a fresh viewpoint to
the current situation."
The obviously poor financial results have been the main focus of
investors, however. After the first quarter was released, Mentor's
stock sank to a low of $6.50. But insiders have been taking advantage
of these depressed prices. Chairman Jon Shirley bought 50,000 shares
for $6.75 each on May 2. This brought his holdings to 55,000 shares.
CFO Gregory Hinckley has steadily picked up 18,000 shares since the
beginning of 1997 at prices ranging from $9.88 to $10.25--higher than
Mentor's present price. Additionally, in late 1996 three other
insiders purchased 21,000 shares at prices between $7.63 and $8.93.
Now at 8.81, Mentor has a market capitalization of $574.8 million.
This is 1.3 times Mentor's 1996 revenue of $447.9 million, and 1.2
times estimated 1997 revenues of $470.3 million (assuming a 5%
revenue increase in 1997 as forecast by the company). While this may
be considered a fair price for Mentor given its recent losses, it
does not take into consideration the already demonstrated growth
potential of its new products. In 1995, when Mentor was decently
profitable, the company earned $50.5 million ($0.78 per share) on
$432.6 million in revenues. Daniel Nelson of Ragen MacKenzie predicts
that the company's historic profitability could resume in the future,
and would result in earnings of between $0.80 to $0.85 a share by
1998. This would give Mentor a forward p/e of between 10.4 and 11.1.
This scenario does not even take into account another intriguing
aspect of Mentor. Raj Seth confirmed that there is talk in the
industry that Mentor, "may possibly spin-off pieces of its business
in the short term." And Mr. Seth believes that "the sum of the parts
at Mentor may be worth more than the whole."
Although, there is still a risk of earnings disappointments at
Mentor, it does not appear that investors are expecting much from the
company anyway. Daniel Nelson points out that Mentor, "has an
insurance policy of low earnings expectations." This should give
stability to Mentor's current stock price should its next earnings
release (expected after the market closes on July 29th) holds another
nasty surprise. On the other hand, any positive should cause a nice
spike upwards in the stock.
"About the worst that could happen is that the turnaround will take a
little longer," believes Nelson. Similarly, Raj Seth concludes that
"there still is a lot of value in Mentor, and the only question is
how and when it will be unlocked." With a return to profitability
close at hand, Mentor should hit $12 over the next 12 months.
2) EXBT $11 15/16: book value is $9.5; $3 in cash; no LT debt; introduced alot of products over past Q; spent alot on marketing and developing reseller partnerships; pushing hard in Asia where they saw their biggest growth; good initial sales of new product; alot of OEM relationships; cheap versus historical earnings; number one player in industry is Seagate; best new product w/ potential is Eagle Nest; very safe bet; think $16 by end of the year
good luck...just my opinion
bibifn |
