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It is an interesting analysis, but you must to take into account the fact that a large portion of its earnings come from its DRAM recovery business, which creates large swings in quarterly earnings and therefore should trade at a lower multiple. How much lower is the question, their products are technologically better and faster than DELL's, but they do not have the market share or brand name. CPQ is valued at 21X 1998 earnings, and has internal changes driving margin improvement, so MUEI, should also trade at a discount to CPQ. MUEI is trading at 13.3X 1998 estimates (year end different than CPQ). These estimates have been reduced numerous times by the Company's guidence. 13.3X may be too low, but given the risks involved in earnings projections and the lack of market share, it should trade at a significant discount to CPQ. AMD trades at a 22% discount to INTC for similar reasons, applying this to MUEI, would imply a top stock price of $20.00. If you are willing to accept a lot of risk, go for it - it seems the stock may be discounting the worse. |
