Here's a bit more about IRF's acquisition of ESM. Note new '03 earnings estimate plus upping of 4th Qtr '02 estimates to two bits.
Using the $1.70 '03 earnings estimate and say about 35% growth rate stock IMO could move to about $60 as soon as investors start to believe the $1.70 is for real.
Market Report -- Story Stocks (IRF)
March 18, 2002 3:08:00 PM ET
International Rectifier (IRF) 43.90 +0.96: While IRF may not get much press, it looks well positioned to emerge from the recent technology carnage. The company makes integrated circuits that produce greater speed and lower operating voltages in an extremely broad range of products. Put another way, IRF makes products smarter. As an example, your refrigerator is a dumb appliance that clicks on and clicks off in order to regulate its temperature. IRF's integrated circuits allow for consistent variable speed control which can reduce energy consumption by as much as 50%. In the wake of California's energy problems last year, the prospects for this application of IRF's technology have been viewed more favorably. Yet its products are also incorporated in cars, satellite technology, personal digital assistants (PDA's), laptops, and flat panel displays. In fact, the company carries an impressive customer list which includes heavy-hitting names such as Intel, Microsoft, Sony, IBM, Ford, General Motors, Dell, Applied Micro Devices, Compaq and Palm. Recent IRF design wins include Microsoft's Xbox, multiple programs for Intel's Pentium III mobile SpeedStep and Pentium IV desktop microprocessors, and four new PDA programs at Palm and Compaq. Yet one of the knocks on IRF has been the perception it makes a commodity product. Perhaps in an effort to address this perception, the company announced today that it has acquired the assets of European Semiconductor Manufacturing (ESM) and its submicron semiconductor manufacturing facility in Newport, Wales. The $81 million cash acquisition is expected to further support the growth in IR's proprietary products in addition to supplementing IR's manufacturing operations with approximately 80,000 square feet of wafer fabrication capacity. Note that IR carried $835 million in cash at last count which means today's $81 million acquisition should not significantly impact its strong balance sheet. In fact, Standard & Poor's has already released a statement today indicating the acquisition will have no effect on its ratings or outlook for the company. This brings us to the question of valuation. The three-year P/E bands on IRF range from a high of 66.2 to a low of 15.9 -- keep in mind proprietary revenues comprised roughly 20% of total sales over that time frame. Currently, IRF shares carry a multiple of 34.2x trailing earnings and trade at 29.5x projections for fiscal 2003 (ending in June 2003). With proprietary revenues at more than twice historic levels (and ramping), and projected revenue growth of 20-25% next year, we see room for additional appreciation from current levels. -- Mike Ashbaugh, Briefing.com
Market Report -- Short Stories (IRF, EPS)
March 18, 2002 1:37:00 PM ET
Intl Rectifier (IRF) 43.80 +0.86: IRF trading up 2% following news that it acquired the assets of European Semiconductor Manufacturing and its wafer manufacturing facility in Wales for $81 mln in cash. Following announcement, Wedbush Morgan reiterates Buy and ups price target to $55 from $45. IRF plans to invest up to $125 mln over next five years expanding the capacity of the Newport fab, at which time IRF believes the fab will generate $750 mln of annual revenuraising FY03 estimate to $1.70 from $1.67. e. Firm views this nearly 4-to-1 ratio of revenue to investment as indicative of management's procuring this new capacity at a bargain price. Firm is maintaining current quarter (3Q02) EPS estimate of $0.19, increasing 4Q02 EPS estimate to $0.25, |
