Lucent Technologies (LU) Message Board

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Technology Stocks : Lucent Technologies (LU)

LU 2.520

-1.4%

3:59 PM EST

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To: Chas. who wrote (21405)	10/29/2003 11:51:35 PM
From: Elroy	Read Replies (2) of 21876

Lets figure out what LU shares might be worth if things go well for them over the next 2-3 years. -------------------------------------- Lu's got 4.2 billion shares outstanding. For easy sake lets assume the annual revenues are going to be about $10 billion (compared to current ~$8.3 billion). Lets be generous and say they get to a 10% operating margin (neither LU or NT ever had that high of an operating margin in the 1990's, but what the heck). Lets be generous (to make the math easy) and say that interest income on $4.5 bilion cash is equal to interest expense on $5.9 billion debt - ridiculous, but makes the math easy. So in this "better than best case" scenario, LU would generate $1 billion operating profit per year on their $10 billion in sales. In order to "normalize" things we might as well tax operating profits at 30% (even though in reality LU won't owe taxes for a while) leaving LU with $700 million net profits per year. That means under "better than best cases" circumstances, LU can earn $700m/4.2B shares = 17 cents per share in one year. That's one year, not one quarter. One year.... Give them a more than generous 25x PE multiple. Dell and CSCO which are much better run companies and much better positioned in their respective industries get ~31x, so 25X seems fair for LU. So you get a stock price of $0.17 EPS x 25 = $4.25, or 40% upside from LU's current $3 per share price. Can't possible seeing LU going higher unless Revenues increase above the $10 billion per year level. So who is buying LU today? Who thinks revenues will hit $10B in the next couple of years, interest expense and interest income will be equal, operating margins will actually reach 10%, and LU will deserve a 25x multiple when at these "normal" operating levels? Who?!? To anyone that answers "me", I got two things to tell you. 1. There are much better investments than LU right now. 2. You're crazy!! Elroy

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