From Yahoo thread:
Investment Summary§ Mentor reported 4Q98 EPS of $0.21 (solidly ahead of the $0.17 pre-preannouncement consensus),
with very strong revenues of $145.mm. Blowout product revenues were up 38% y/y and 41% q/q.§ Record bookings (B2B
> 1.0) were led by continued new product mo-mentum (bookings growth of over 25%). All geographies with the ex-ception
of Japan were strong, as we had previewed.§ Enthusiastic conference call. Raising CY99 EPS to $0.65, from $0.55, on
higher revenues of $540mm and operating margin. Establishing CY00 EPS target of $1.00. Raising 12-month price target to
$19.§ Upgrading stock to BUY. Investment themes: New product momentum, expanding operating margins, and better
visibility/predictability. At a mere 2x of FTM revenues, stock should be trading at about $15.Analysis of Strong 4Q98
Results§ Solid EPS ahead of consensus: Mentor's 4Q98 EPS of $0.21 (before one-time charges) were decidedly ahead of
the consensus of $0.17 established prior to the company's preannouncement on January 5th. EPS was 1 cents below our
recently raised (Street high) $0.22 estimates: better gross margin (+4.2 cents) and lower legal expenses (+2.4 cents),
somewhat offset much higher operating expenses (-7.7 cents). Nonetheless, operating margin of 13.1% was the best in over
eight quarters.§ Enthusiastic conference call: This was an excellent quarter for Mentor, in a turnaround that has perpetually
been "just around the corner". Not surpris-ingly, management was pleased with their performance and very enthusiastic about
prospects for CY99. The essence of the forward guidance provided on the call is that Street estimates will be headed up
materially (more specifics when we address our estimates)§ Buy this stock today: Mentor's stock is currently trading at 17x
and 11x our CY99 and CY00 EPS estimates, cheaper than its peers and the market mul-tiple. We are raising our 12-month
price target on Mentor shares to $19 based on a blended 18.5x multiple (sustained top- and bottom-line growth rates) of our
CY00 EPS estimate of $1.00. More significantly, however, with the demonstrated turnaround in 4Q98, we would argue that
Mentor's shares should trade at more than the current 1.3x FTM revenues. At a mere 2x of FTM revenues (compared with
about 5x for Cadence and Synopsys, albeit with stronger market positions and much higher operating margins), Mentor's
stock should be more reasonably priced at the $15-16 level.
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