Hitesh, thanks for the analysis. Funny, I've been in the process of doing the same thing. I've been lurking here for the past few weeks and seen COMS as a value play. I went long COMS just yesterday. Perhaps we can exchange ideas:
Systems Division - 700 M per Q x 4 = 2800 M / Year
A company solely providing LAN/WAN Core/Access systems even in the doldrums like FORE and NN gets a market cap averaging 3.5 times annual sales. So Market cap for Systems Division = 2800 x 3.5 = 9800 M
In regards to NN, taking revenues for the past four quarters yields a Price/Sales ratio of 4.29. Looking at FORE in the same manner yields a P/S of 3.61. Wait until FORE gets acquired, looks like any day now. Taking this into account with a 15% premium for the takeover yields a P/S of 4.15. For the sake of argument, taking a multiple of 4.0 for the COMS unit - 2800 x 4.0 = 11200M
Client Access Division - 600 M per Q x 4 = 2400 M / Year
A mature and slowing growth division like this should only get a multiple of 0.5. So market cap for the Client Access Division = 2400 x 0.5 = 1200 M
Question, granted this is a slow-growth vehicle, but a Price/Sales multiple for the unit below 1.0. Are the margins for this type of business fairly low? On a conservative basis, I put P/S for the division at 1.0, with a valuation of 2400M.
Handheld Division - 100 M per Q x 4 = 400 m / Year
Fastest growing and most exciting prospect product division can definitely get a multiple of 5. Hence market cap for Handheld division = 400 x 5 = 2000 M
We agree on the multiple. I read on the thread where the Palm unit accounts for approximately 10% of COMS's revenues. Taking this as a guide, with the last four quarters ending with the 3Q, revenues were 5732M. Thus a revenue estimate of 570M for Palm Computing and 2850M for the unit. I think this is a fair assessment.
Cash and Equivalents (conservatively less than actual) = 1000 M
As per 3Q release, cash on hand is 981.52M (Not to quibble) :)
Ergo the following breakdown:
Systems Division: $11200M
Client Access Division: 2400M
Handheld Division: 2850M
Cash and Equivalents: 982M
TOTAL $17432M
Number of outstanding shares (diluted) as per last report = 374.7M shares. Represents fair value for COMS = $46.52 / share.
Granted the above accepts ideal conditions and represents a nearly 100% markup to what MM's value COMS. What do you think?
Any and all comments are appreciated. Perhaps we can all chip in and get a more focused picture.
Regards,
Pat
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