GMST Valuation:
NY Stew posted a good report on GMST. It had this valuation, which I did not understand. Could someone please help? BTW, I'm stupid, so please be gentle. :)
o $110 price target. We believe Gemstar's worldwide advertising/e-commerce business can be generating over $4 billion of advertising operating income in 5 years. We conservatively assume zero value for the e-book business, TV Games network, VCR+ (currently an estimated $70 million of EBITDA) and TV Guide's Entertainment Group and United Video group (estimated $335 million 2000E EBITDA excluding the EPG) and no interest income. The company is projected to generate after tax EPS (before goodwill amortization) of over $6 per share in 2005 growing at 100% per year. Assuming a 50 multiple and a 20-25% discount rate leads to a $100-123 price target. Taking the mid-point, our price target is $110.
Questions
1) $6 EPS: To arrive at this number, it seems that they are only counting the EPG's and advertising, or is it just advertising? They excluded e-books, games, vcr+, etc. While excluding these items, they acknowledge that some of these areas earn money, ie $70 million and $335 million. Thus the estimate is very conservative, is that correct?
a) How did they arrive at the $6 figure? They did not seem to support the $6 EPS.
2) $6 per share in 2005 growing at 100% per year: This is a grammatical question. Does this mean at 2005 they expect GMST to still be growing at 100%, or, to arrive at the $6 figure, they are assuming 100% growth for the next 5 years?
3) 50 multiple: I assume that means they expect a P/E of 50 at 2005.
4) $100-123 price target: Even given these fancy numbers, I don't know the formula to arrive at the price target. Second, is this their 2005 price target?
I guess I could go on, and on. Given this week's blood bath, I could use a good lesson on valuation (if you could not tell).
Thanks.
-wopr |
