Since we have just been discussing CMOS of this thread, here is an input from today's Briefing.com
<<12:02 ET ******
Credence Systems (CMOS) 15.57 +1.32: Credence Systems is scheduled to report Q4 EPS after the close. Reuters Research prints consensus Q4 EPS at ($0.34) on revenue of $53.1MM (+22.9% Y/Y) and Q1 of ($0.22) on $60.5 (+64.9% Y/Y); F03 EPS of ($1.41) on revenue of $178.3MM (+8.6% Y/Y) and F04 EPS of ($0.25) on $301.2MM (+68.9% Y/Y).
We would look for modest upside and a bright demand picture, in light of recent order activity for test equipment, showing accelerating top-line growth beyond the 60-70% Y/Y growth projected for F04.
Valuation
On an inverted DCF/EVA basis, assuming aggressive balance sheet management and 20% operating margin (approximately 8000 bps improvement in gross and operating margins), CMOS' valuation implies management must still grow revenue in the low-30% range over the next 8 years beginning in F06 in order to support current valuation; an alternative scenario, also assuming aggressive balance sheet management and 20% operating margin, is revenue growth in excess of 100% over the next two years, followed by low-teens growth in the remaining out-years.
On a price multiples basis, CMOS trades at 5.5x F03 revenue of $178.3MM and 3.3x F04 revenue of $301.2MM.
Summary
CMOS shares are cruising ahead of fundamentals. Part of the gross and operating margins improvement, as implied in our model, will simply be a function of improved economies on strong industry top-line growth. Nevertheless, management will still need to aggressively a) grow CMOS' top-line significantly ahead of the industry average, b) manage the balance sheet and c) control operating expenses in order to grow cash flow to a level that justifies current valuation. To that end, before initiating a new position, we would look for confirmation that recent order activity supports an acceleration in top-line growth beyond the 60-70%+ Y/Y growth projected for F04, and that management has a firm timetable for margins improvement and a clear path to profitability, or until at least a 25-30% pullback.--Ping Yu, Briefing.com>> |
