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Technology Stocks : Wind River going up, up, up!
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To: Allen Benn who started this subject12/31/2000 7:41:08 PM
From: umbro  Read Replies (1) of 10309
 
How WIND may surprise to the upside in the Year Ahead

Had a little time this weekend to run some numbers on WIND. Using management's guidance and some guesswork, I came up with the following model:
- Revenues grow at a rate varying from 38% in Q1-2001 down to 27.9% in Q4-2002. This matches up with management's statement that top line growth in FY02 will decline to 30% from current levels of about 35%.
- Profit margin increases from present levels of 9.5% of revenue to 20% of revenue by Q4-2002. Management hasn't given this guidance explicitly, but has indicated a desire to get to 20% margins sometime in FY02.
- Shares outstanding grow at 4% a quarter, or about 16% a year. This is just an estimate based on recent history, but does seem to offer enough room to fund options plans and make small acquisitions.

Putting these numbers together, I end up with the following forecast:

	EPS	EPS	EPS
                (Annual)Growth
Q2-2001	0.10	0.57	
Q3-2001	0.12	0.52	-35.1%
Q4-2001	0.16	0.51	-7.7%
Q1-2002	0.20	0.59	61.9%
Q2-2002	0.24	0.73	28.7%
Q3-2002	0.29	0.90	73.0%
Q4-2002	0.33	1.07	109.2%


Here's the detail:

       Sales	Earnings (Mil.)	Shares (Mil.)	EPS	EPS (Annual)	Rev. Growth	Margin
Q2-2001	101.00	6.60	77.00	0.10	0.57	38.0%	6.5%
Q3-2001	114.80	9.70	79.90	0.12	0.52	36.1%	9.5%
Q4-2001	123.58	13.62	83.10	0.16	0.51	34.3%	11.0%
Q1-2002	132.61	17.59	86.42	0.20	0.59	32.6%	13.3%
Q2-2002	141.86	22.00	89.88	0.24	0.73	31.0%	15.5%
Q3-2002	151.30	26.86	93.47	0.29	0.90	29.4%	17.8%
Q4-2002	160.91	32.18	97.21	0.33	1.07	27.9%	20.0%


This forecast gives an EPS estimate of $1.07/share for FY02 which is well above consensus of $0.74, and the high-end estimate of $0.82/share.

If WIND can achieve these levels of performance, they'll certainly get the analysts's attention. Three important things have to happen though: (1) WIND has to continue to improve profitability, and get it back to the 20% level, (2) sales growth has to continue at the +30% level, and (3) the shares must not be heavily diluted by acquisitions or secondary offerings. Improved profitability and sustained revenue growth may be difficult to achieve if we see a sever recession. Still, the study above does show what WIND is capable of doing if it hits its goals.

DISCLAIMER: THIS IS ALL HYPOTHETICAL. DO NOT USE THIS WHAT-IF STUDY AS A BASIS FOR YOUR BUY/SELL DECISIONS.
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