For what it's worth.
John
Buy on weakness - Briefing.com updated its Active Portfolio segment on Motorola today.
[Updated: 10-18-06]... Given the recent rise in shares of Motorola (MOT $23.60), expectations were running high for the world"s second largest handset maker into its third quarter result. The street was expecting a solid quarter, but what Motorola delivered was a weaker than expected top line, topped off by lighter Q4 guidance. Revenues rose 17% to $10.6 bln vs. $11.1 bln, including handset revenues of $7.0 bln - the slowest growth in five quarters. EPS came in-line. Handset shipments were also a bit light, rising 3% sequentially to 53.7 mln units. The softness in the top line resulted from a slowdown in carrier GSM capex and a pause in orders for iDEN phones ahead of the launch of a dual-mode handset at Sprint later this month.
Top line weakness overshadowed improved profitability, ongoing market share gains, and strong cash generation. Device margins continue to expand, widening 70 basis points sequentially to 11.9%. Further, the Connected Home Solutions segment demonstrated strong revenues and profitability of $812 mln and 7.8%, respectively. Nonetheless, after-hours weakness in the stock is likely to continue today as market participants focus on the top line softness, conservative guidance, and shipments.
While Q3 was certainly a disappointment, it has not changed our investment premise on the stock. We continue to believe the motormomentum will continue driven by the fact that global handset growth remains healthy, coupled with Motorola"s refreshed product line up, particularly in the emerging markets, and ongoing cost reductions and operating efficiencies producing further operating leverage going forward. As such, we would recommend investors take advantage of any material weakness to add to or initiate positions. At the current levels, the stock remains compelling at 14x excluding net cash and options expense.(kdubord@briefing.com)
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