Thread,
Am I the only one that thinks that the tracking stock is a bad idea? After all, the motivation behind the move is a conviction that the stock market is too stupid to add or that this will allow the DLT business to attain some wild valuation based on speculative frenzy. In other words, management has spent too much time listening to investors like us who watch the stock hourly. Better they focused on their business than watching their stock price.
I'm old enough to remember several of these cycles where one year spinning off business is the rage and the next year it's consolidation and diversification that tickle the fancy of boards everywhere. Remember there is something to be said for having more than one business, especially when one is the HDD business, which goes through periodic bouts of self-mutilation.
I like QNTM at these prices too, but I think some of the estimates of what the DLT business is worth in a stand-alone state are wishful thinking. Two days ago Andy Neff at Bear Stearns wrote the following about QNTM. He is unabashedly a Quantum bull, yet only values DLT at $18/share. I think he is being conservative but perhaps more realistic than many of us here. Here is part of his report:
We believe the disk drive business should be worth between $10-$20 depending on how investor sentiment is towards the data storage industry. This valuation is derived using a price/sales ratio of 50%-100% (giving Quantum a slight premium from the lows owing to its leadership position) on FY2000 drive sales of about $4 billion (and 187 million shares fully diluted). Over the past 10 years, disk drive stocks have sold broadly between a range of 20% and 110% of trailing sales, although the valuations for companies perceived as "survivors" has generally been in the 50%--110% of sales. We assume that the valuation for the disk drive component of Quantum should fall into this latter range.
We believe that the DLT tape operation is worth at least $15 - -$18. We are using assumptions for DLT of about $1.8 billion in sales for FY2000 (including ATL Products), a blended operating margin of 20-25%, tax rate of 40% (higher than its disk drive business), and a price/earnings multiple of 12x-15x times these projected earnings for a business with a 25% growth rate potential. This multiple may be conservative given the dynamics of the DLT business, which could argue for a higher multiple owing to its profitability and growth.
-Robert
|
