Thursday, January 18, 2007

Motorola (NYSE:MOT) - buying opportunity ahead of management meeting

Plenty of firms previewing Motorola (NYSE:MOT) ahead of quarterly conference call/mini-analyst day taking place tomorrow. Severals firms are taking a look from the sum-of-the-parts/LBO perspective.

- Bear Stearns notes that Motorola's market value is down 23% since it released 3Q earnings on 10/17/06. This implies a massive decrease in the value for the handset business since they've seen no material change in either MOT's Networks and Enterprise or Connected Home businesses. By using relative comps for MOT's N&E business at 1.2x EV/Sales, and CH business at 2.2x, firm arrives at an implicit value for MOT's handset biz of $18bn today or 0.58x 2007 sales vs. 1.01x in October. Using the same analysis, NOK's handset business has decreased from 1.24x to 1.04x, only 0.20x a turn lower, in the same time frame.

- JP Morgan estimates Mobile Devices is trading at a surprisingly low 0.4x 2007 revs using discounted transaction comps for the Networks and Connected Home businesses, MOT's $3.9B purchase price for Symbol Technologies, and a trading multiple for the Enterprise business.

Assuming even no revenue growth ever again and a return to just 10% oper margins, firm believes Mobile Devices could produce a 17% FCF yield implying that a hypothetical private equity owner could get paid back 100% of the purchase price in under 6 years.

- Deutsche Bank's LBO model shows that a financial buyer could justify a purchase and expects reasonable returns for private equity levels. These returns, however, would be premised on paying little premium and enjoying some multiple expansion or greatly improved operating margins. Both of these are possible, but firm thinks such a transaction carriers with it significant risk, which may outweigh the returns.

Notablecalls: Motorola mgmt has got some explaining to do, so taking the time to sit down with the investors is the right thing to do. Co has to make a decision between margins and market share and I think the mkt expects a reasonable strategy on how to reachieve margins without the expense of mkt share. We already saw stock ticking up yesterday and I'd expect it to continue today as any rebound in margins would make the valuation quite attractive

No comments: