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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (9443)	6/1/1998 6:57:00 AM
From: Greg Jung	Respond to of 18691

At the bottom of the post is a print-out of the spreadsheet for Cisco. 40% was growth rate in earnings, projected indefinitely into the future and it agreed with recent past. Share dilution takes about 4% of that away in recent past and forseeable future, so what looks like 35% pre share growth would be 40%. See columns in extrapolated per-share earnings. "valuation" is based on total forward earnings current, c+1, c+2, c+3 divided by projected share total. For Ascend they have had a large amount of share dilution that may not carry into the future. Here is the same projection for them, rosy scenario PEG=1 sheet. Recent $1/share total eps is projected and a growth rate is found which will satisfy the share price. With 9+ percent share dilution that rate is 45%. Ascend Communications: Earnings dilution worksheet Assume: 45% Total earnings yearly growth EPS Assume: 9.5% dilution/year Qtr end #SHARES $ /share ==> 32.4 Forward PE Multiplier 3/31/97 185.6 36.1 0.19 6/30/97 189.8 39.7 0.21 PEG=1 $$ Cash 9/30/97 194.2 43.5 0.22 Value (2) per share 12/31/97 198.6 47.8 0.24 39.2 1.00 (3) 3/31/98 203.2 52.40 0.26 42.9 (1) 1.25 6/30/98 207.9 63.74 0.31 46.1 1.54 9/30/98 212.6 69.94 0.33 49.4 1.85 12/31/98 217.5 76.75 0.35 53.0 2.17 3/31/99 222.5 84.22 0.38 56.8 2.52 6/30/99 227.6 92.42 0.41 61.0 2.90 9/30/99 232.8 101.41 0.44 65.4 3.30 12/31/99 238.2 111.28 0.47 70.2 3.72 3/31/00 243.6 122.12 0.50 75.3 4.18 6/30/00 249.2 134.00 0.54 80.8 4.66 Notes: 1. Due to higher earnings in QE 12/96 the actual trailing eps as of 3/31/98 are $1. So earnings subsequent to QE 3/31/98 are adjusted. (10% in favor of stock) "2. ""full value"" is calculated as (Forward PE factor) X (forward earnings) / (anticipated #shares)" 3. Cash is accrued from earnings, with 4% annual after tax interest To arrive at today's market value of $44 under dilution such as occured since QE 3/31/97, A sustained earnings growth rate of 45% is required. This leads to a forward PE value of 32.4 and a $55 valuation on Jan 1, 1999. (For market PEG=1) Recent earnings growth rate has been substantially less (29%). This rate discards substantial ""special charges"" of $111 million.