Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio candidates - Moderated -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (216)	10/31/2003 7:32:21 PM
From: straight life	Read Replies (1) \| Respond to of 2955

"...However, if you've seen the RTW fair value as determined by the assumptions in their discounted cash flow analysis, you realize that it also supports the idea that the stock is priced to perfection if not more so. Does this seem reasonable? Your assumptions include that the stock price will remain the same even if the company increases free cash flow 50%annually for the next three years. That seems to ignore my comment that if indeed free cash flow continues to increase at that rate, the stock's price will surely rise. Your chart assumes that Qualcomm will increase FCF 40% annually from FY00 - FY06. Correct me if I'm wrong, but I don't believe very many companies have done that for six years after having achieved $500 million in FCF. If I'm right about that, that expectation is indeed one of perfection. I hope you're estimates are accurate, but I think they assume perfection. Now that I've answered bunches of your questions, I've only got one for you: What do you think today's fair value is?" OK... so if the company raises FCF 50% per year you're in... only you don't think they will and it's priced too high so you're out... so, okay, what's fair value? And are you in or out? -confused

To: Mike Buckley who wrote (216)	10/31/2003 10:01:46 PM
From: Jim Mullens	Read Replies (1) \| Respond to of 2955

Mike, Re: QCOM valuation and FCF- 1.In your prior post your stated- > “Only if you round $4.4 billion up to $5 billion. I stand by my numbers and my comment that you accidentally overstated the 9-month increase in cash and marketable securities by nearly $260 million. Everything is substantiated in Qualcomm's Q3 earnings report and the corresponding 10Q. “<<< My Source- Qualcomm 3rd QTR FY 2003 earnings report- page 17 of 18 - Balance Sheet qualcomm.com Current Assets- Total Qualcomm including QSI .......................................................June 29,2003..........Sept 29,2002 ....Cash and Cash Equivalents.....$1,794,825K................$1,406,704 .....Marketable securities.................2,565,193....................1,411,178 Other than current assets ....Marketable securities.....................603,576......................381,630 Total Cash + Mark sec.................$4,963,594..................$3,199,512 The above totals are reflected in the Q’s Think Equity Partners presentation 9/17/2003- Slide 23 of 24- qualcomm.com 2. A.In your reply to my post you stated- >> “Your assumptions include that the stock price will remain the same even if the company increases free cash flow 50%annually for the next three years. That seems to ignore my comment that if indeed free cash flow continues to increase at that rate, the stock's price will surely rise. Your chart assumes that Qualcomm will increase FCF 40% annually from FY00 - FY06. Correct me if I'm wrong, but I don't believe very many companies have done that for six years after having achieved $500 million in FCF. If I'm right about that, that expectation is indeed one of perfection. I hope you're estimates are accurate, but I think they assume perfection. “<<< 2.B. My follow-up Apparently I misunderstood your original comment.>>>” If free cash flow annually increases 50% for the next three years and the enterprise value remains unchanged, only then will the value be the equivalent of about 10 years of free cash flow.”<<< I kept the stock price the same in response to what I believed you were saying, namely QCOM at its present value of $47.50/share would only be fairly valued if its FCF increased 50% per year over the next 3 years. In other words, only after three years with FCF increasing from $1.451B in 2003 to $4.9B in 2006 would QCOM be worth $47.50 per share. I attempted to interpret what you were stating by putting up some numbers, doing a few calculations based on what I believed you were expressing. Sorry if I confused you, but now I’m totally confused. It would be helpful if you could explain you methodology by giving us the FCF numbers you’re working with. Thanks for your patience- jim