continued:
(4) Combined LSI model:
Assume SYM's GM goes to 40% (from current weak environment 36% this is not unreasonable and further LSI could lower costs down with their more "efficient" processes)
Assume CON's (the old LSI's) GM is around 47% (one might think this is high but std products have higher overall margins than doing everything from scratch products. If this sounds goofy it isn't. It boils down to better fab utilization).
Then combined GM is 45%. (Again I think 40 and 47 are low numbers - esp. CON's 47 <g>).
Combined R&D from 2 posts ago is fine at 15%
and combined SG&A from one post ago is fine at 13%
Operating margins therefore 17%.
Interest expense - (revenues 1.8 billion, cash 0.23B, LTD 0.6B, assume 5% interest rate l/t, 3% s/t ) = -ve 1%
Income before taxes - 16%
Taxes (current 25% assume future 28%) - 4.5%
Net Income after Taxes - 11.5 - say 12%, which actually is ok and not
great by any means but it is a reasonable base.
12% on 1.8 billion in sales on 140 million shares is a baseline EPS of
$1.54 per share in 1998.
(5) Rate of Revenue growth:
SYM - 20% easily attainable
CON - let's be very conservative and assume l/t IC average of 17% (this is actually to take into account Gresham start up costs etc)
Combined LSI - 18% revenue growth rate (using 1998 as base)
Hence baseline EPS goes to $2.53 in 2001.
P/E flat = 18.
Risk factor = 30%.
P/E adjusted = 13.
Minimum share price (under ludicrously weak assumptions) in 2001 = 33.
Minimum share price assuming that P/E adjusted = P/E flat = 18 in
2001 is 46
Minimum share price assuming LSI does do things properly over the next few years and the synergies are there: P/E adjusted = 23 which gives
58 in 2001.
Minimum share price assuming semis go moderately ballistic over the next few years considering severe shortage of capacity and NET explosion - up revenue growth rate for SYM to 23%, up CON growth rate to 25%, for combined revenue growth rate of 24%, P/E flat of 24%, risk factor premium 25%, P/E adjusted of 30 and earnings of $2.91 in 2001, share price of LSI is $87.
Assuming things go hog wild over the next 3 years for LSI, $100.
Adjust by probabilities of distribution:
crap average good-times Price
first - 15% 10% 0% 33
second - 25% 20% 10% 46
third - 35% 25% 20% 58
fourth - 20% 30% 40% 87
fifth - 5% 15% 30% 100
exp.price $59 $68 $81
[add later: Big OOPS! Forgot to adjust for share dilution! Maybe 20%.
BUT this might be OK since I just upped earnings by the revenue growth
rate (for conservative numbers). As every one knows earnings go up faster than the revenue growth rate for semis. (Of course we are in the corollary of this fact these days - earnings get hammered much faster than the slowdown in the revenue growth rate. So my sense is that the numbers above even accounting for dilution are on the low end and that is the way this boy likes to make up guesstimates!]
Really I don't think the above table makes sense for the crap and
good-times columns since these are reflected in the scenarios themselves. So just take the 2nd and you get $68 as a reasonable guess. True this is not 100 but 100 is the best of all possible worlds scenario and that can still happen. $68 is a baseline.
For me with an average cost basis of 24 and an average holding period
of 5 months (so average buying time was 5/1/98) if LSI were to hit
$68 in 7/1/2001 that would give an average return of 39% for the entire period. Put some margin in there and I'm golden <g>.
Shane.
average |
