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Technology Stocks : LSI Corporation -- Ignore unavailable to you. Want to Upgrade?

To: thomas hayden who wrote (13250)	6/28/1998 5:08:00 PM
From: Hightechhooper	Read Replies (1) \| Respond to of 25814

Thomas, Yes, I do still believe LSI is undervalued right now. The difficulty in using current year earnings (or last years for that matter) is that earnings will go up much faster than revenues due to the cost structure being so fixed. For example, in the fall of 1995 when LSI was making 50 cents per qtr in earnings and Full year estimates were for 1.75 or so the stock fell into the mid 20's. On a trailing PE basis (or using current year estimates) you would have said the stock is highly undervalued. However, it fell because the future expected earnings were falling dramatically. So now in 1998 we see the opposite of this scenario where current estimates are only in the $1 range because LSI has invested heavily in infrastructure (Heavy R&D in their new product areas as well as new production facilities) and the current expectations for earnings next year are in the $1.50 range (a short term growth rate significantly above the market average) because people are expecting those investments to be heavily leveraged next year. If people really thought this would not materialzie next year due to asia or compeitition or whatever the estimates would not show this huge growth. So, my contention is that LSI is at a point were looking at historical or point in time earnings does not reflect the fundamental strength of the business or its ongoing business model. Under your scenario, when 1998 comes to an end and 1999 estimates are on the board the price will suddunly jump up to $38 per share (roughly 25 times 1.50). I am contending that the price should be closer to $30 now and move up to the 35-40 range by year end if the estimates hold up for 1999 and then earnings will begin to grow more consistently with revenues as the leverage in the business will be at more ongoing levels (vs the large leverage available today given the fixed costs I have mentioned). I believe this is why most of the 12 month price targets for LSI are in the 35-40 range (a few still in the upper 20's because they are still pissed at the debactle of 1997). All I can say is as of now, the market is taking your scenario as the appropriate one, not mine. However, I think this treatment is inconsistent with other companies in similar situations. As a result, I am just hoping everyone comes to their senses soon so I can make some dollars!! Good Luck,