From Prudential's Petersen (7/26), in excerpts:
Valuing Spinco. We are now comparing Spinco against our average communications semiconductor companies CY01 EPS multiple of 90x. Using that multiple, Spinco if alone, could trade today at $53 or 90x our CY01 EPS estimate for Spinco of $0.59. On the other hand, if assigned a multiple in line with best of breed communications semiconductor companies, such as those with high proprietary and high added value patents such as Broadcom (BRCM, currently trading at 179x its CY01 EPS estimate), Spinco could trade at $105 or 179x CY01 EPS estimate, if it were a stand alone today. The 3-year EPS growth rate for the communications semiconductor companies is at 45%, which is in line with our EPS growth rate estimate for Spinco at 44%.
Valuing the ongoing Qualcomm Business. As for the onging Qualcomm business, it will be dominated by licensing and royalty revenues. (over 50% of its revenue base). There is not a clear segment for licensing and royalty base companies but we feel that certain software industry segment, specifically B2B E-commerce software companies have similar revenue structure and growth rates. This segment trades on average at 83% CY01 EPS estimate. Using that multiple, we believe the ongoing Qualcomm business could trade at $62 or 83x our CY01 EPS estimate of $0.74. Using best of breed for a company that has strong licensing and royalties revenue stream, the multiple would be higher. Using Siebel Systems Inc (SEBL), a software company which derives 70% of its revenue from licensing and royalties (trading at 125 CY01 EPS estimate), an ongoing Qualcomm could trade as high as $93 or 125x CY01 EPS of $0.74, in our opinion.
he average 3 year EPS growth rate for the B2B E-commerce software companies is about 30%, which is in line with our EPS growth rate estimate for the ongoing Qualcomm business at 27%.
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