NW ... Fundamental Analysis
Your technical analysis is very nice and informative, keep
up the good work. I'll do my part here and perform a little
fundamental analysis based on the previous quarters
financial results and the company guidance going forward.
To get a handle on EPS going forward, one needs to
calculate the operating margins (OpM). From the previous 3
quarters results, the following data are generated:
Notes: Rev. = Revenue (B), IBT = Income Before Taxes (M),
NII = Net Investment Income (M), IIBT = Investment Income
Before Taxes (taxe rate is 35% on investment income per the
company), OpI = Operating Income (before taxes)
Rev. IBT NII IIBT OpI OpM%
Q4-99 10.5 435 50 78 357 3.41
Q1-00 9.5 478 44 68 410 4.31
Q2-00 10.1 569 25 39 530 5.23
The main purpose of the above exercise is to show that
margins are improving consistently even under unfavorable
conditions, examples are: hangover from Y2K, slow adoption
of W2K, component shortages, and excess inventory of
consumer PC's in Q2.
Looking forward, the company said in several occasions that
they will meet this year numbers. In the latest CC they
projected 10.8B revenue and 29 cents EPS for Q3. In order
to meet this year numbers, Q4 numbers would be 12.1B
revenue and 41 cents EPS, resulting in 42.5B revenue
(~10.5% YOY growth) and $1.07 (excluding investment
income) for FY00. Using Q3 and Q4 projected numbers, one
can calculate the OpI and OpM assuming 1.76B shares and
32% tax rate on operating income:
Rev. OpI OpM%
Q3-00 10.8 751 6.95
Q4-00 12.1 1061 8.77
Comparing Q4-00 vs Q4-99, OpM improvement YOY is about
5.4% which is consistent with their guidance during the
analysts meeting in Jan., refer to post #77121 for more
details. According to the same meeting, their objectives
are: OpM = 10%-11%, revenue growth = 15%. One may
reasonably assume that the OpM will gradually improve
through FY01 and reach 10.5% by Q4-01 and stay around
10.5% during FY02, and revenue growth will improve from
~10.5% in FY00 to 13% in FY01 to 15% in FY02. IMO, all
these numbers are reasonable and achievable.
To project the numbers for the next two years, we need to
figure the average OpM for FY01. I would assume 9.5%
average OpM for FY01 would be conservative enough to allow
for some minor glitches along the way. Now, let's look at
some interesting projected numbers:
Rev. Rev. OpM% Shares, B EPS EPS
Growth% Growth%
FY-00 42.5 10.5 6.5 1.76 1.07 -
FY-01 48.0 13.0 9.5 1.80 1.72 61
FY-00 55.0 15.0 10.5 1.85 2.12 23
It appears that the consensus EPS estimate of $1.50 for
FY01 is extremely conservative and will be revised upward
as the company provides more guidance. My projected number
of $1.72 for FY01 is mainly based on the gradual
improvement they showed in the previous quarters, their
guidance, and their objective of reaching industry OpM and
revenue growth. IMO, based on the robust EPS growth number
for FY01, the stock price will make significant gains over
the next 12-18 months, I wouldn't be surprised to see the
stock climb to $70 sometime during 2001. |
