Sales of DLT - 1.4 billion
Profits from DLT - 240 million
Current Market Cap - 3.25 billion
So it is selling at 13.5 times this year'searnings of the DLT
business and 2.3 times sales. This is very reasonable, when you
consider they have a near monopoly on the product and the media,
and that those sales have gone from $100M to 1.4 billion in
less than 3 years. A tech company growing that quickly with
that type of market dominance might conservatively command a
market value of 20 times earnings, or 4.8 billion ($35/share).
This is also what several analysts have projected for the
DLT business, which tells me I'm not too far off.
But you have the DD too. Even if I give you that the business
is cyclical, it is still 5 billion in sales for the company,
which at a bare minimum has got to be worth .25 of sales, or
1.2B, so add that to the DLT business, and you get 6 billion
or $44/share.
I understand Quantum's management to be the best and the
most forward-looking among the dd's, and it roped in this
exclusive deal with MKE for MR technology. Quantum believes
it is 6-8 mos ahead of the competition in the MR arena.
So I would assign it's dd business a premium over SEG and
WDC.
Now, my contact is a former SEG VP who likes SEG, but grudgingly
says QNTM is better positioned now. SEG has $7 in cash, but
is fully exposed to the DD cycle. It has interesting investments
and I certainly like it too, but I don't know how to value it
given QNTM's lead in DD technology now.
So IMO, QNTM's high in the low 40's was around fair value for
the company. There will be charges of around 35M, but the market
has overreacted. Short-term, it may go lower on tax-loss selling
and institutional window-dressing (I certainly wouldn't want a
"DD" in my end-of-the-year portfolio if I was using that portfolio
as a marketing tool). But long-term, it is at nearly a 50%
discount currently, which will widen with greater contribution
and diversification of products along the high-end backup lines.
Mike
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