continued from previous post...
In the next few years LSI the 2 companies is going to become LSI the
one company. Here's how parts (a) and (b) will grow:
Revenues (in millions)
-----------------------------------------------
(a) (b) Total (baseline) P/S (baseline)
1997 780 520 1,300 2.5
1998 740 700 1,440 2.8
1999 700 960 1,660 3.2
2000 650 1,340 1,990 3.6
2001 580 1,810 2,390 4.0
2002 520 2,440 2,960 4.3
Here we assume that company (a) decreases at rates of:
-5%, -6%, -7%, -10%, -10%.
And company (b) grows at:
35%, 37%, 40%, 35%, 35%.
(Now that I've done this I'd like to reduce (a) faster. But not
going to calculate the numbers again!)
------
So how will the above translate into LSI the combined company's
stock price:
P/S Sales Price(Cap.) Shares Share Price
1997 2.5 1,300 3,250 140 $23
1998 2.8 1,440 4,030 140 29
1999 3.2 1,660 5,310 145 37
2000 3.6 1,990 7,160 150 48
2001 4.0 2,390 9,560 155 62
2002 4.3 2,960 12,730 160 80
and accelerating faster as time goes on....
What's happening is that the bad LSI company (a) is too much of
a drag now and only later on down the road will the good company
(b) be able to overcome the effects of company (a).
Two things are happening. Sales growth of course but also the
higher valuation metrics that accompanies it (since company (b)'s
greater profit margins are coming into play.)
Of course the big issue is whether 5.0 times sales is a good number
for (b). Don't know but close enough.
(BTW baseline in all of the above means calculated using long range
growth rates. The other thing is to remember is that the stock price
will likely fluctuate anywhere from I'd guess 30% around this
baseline number easily! Likely with a hiher bias.)
Also I fully expect a bout of major semiconductor euphoria in the
years 1999 or 2000. If past history is any indication premiums on
stock prices can go up 50% at that time. Which in turn suggests that
80 or 90 bucks a share in Y2000 is not out of the question.
---- |
