Research from a long, $33 - $38 / share
Re: Reply to proveittome Part 4 (last)
by: makemilns (38/M) 11/26/00 2:40 pm
Msg: 41119 of 41131
Zicam: ANNUAL analysis. Based on $10 million in advertising, $4 million in other operating expenses, $1 million in R&D, and 72% gross margin, Gel Tech would contribute the following profit to Gum Tech at various sales levels:
Sales (million)-------------Profit (per share)
$21.5----------------------- break-even
$25.0-----------------------$0.23
$30.0-----------------------$0.51
$35.0-----------------------$0.78
$40.0-----------------------$1.06
Every $5.0 million in sales adds $0.28 per share to earnings.
You can use your own judgement on how much they will sell annually. Despite the delay, I still think that they will sell Zicam outside the US.
I don’t think it is unreasonable to expect Gel Tech to sell $25 million to $35 million in Zicam in 2001. If you assume $30 million, the profit to Gum Tech would be 51 cents per share. If you add in 60 cents per share from the gum business, total profits in 2001 would be $1.11 per share. Based on a forward PE of 30, the stock would be worth $33 one year forward. If you add in even only $5 per share for the value of the joint venture with Swedish Match, the one year forward value is $38. If you discount that value back one year at a rate even as high as 25%, the stock would be worth 30 today. The reason it isn’t trading there is due to a combination of factors including a lousy market, rising short interest, uncertainty regarding sales of Zicam, uncertainty regarding the timing of and magnitude of dental gum sales to the large consumer products company, and uncertainty regarding sales of nicotine gum. If any reputable analyst other than Gunn Allen, put out an estimate such as mine, the stock would trade much higher than it is now. One day soon they might. In the meantime, I believe that the stock will hold above major support in the 10 area and anyone who is short today and doesn’t cover will regret it. By the time you see two consecutive quarters of positive cash flow, I think that the stock will trade two to three times today’s price. Good luck. |
