The firm notes tjeu have not included any revenues or licensing fees from PCM until they get better visibility, but they believe this segment could be worth $40/share. Firm derives this value by applying a 1% licensing fee to the Flash and DRAM market of $50B, which yields $500M in revenues to the Ovonyx JV. Since this is a licensing company, Ovonyx should generate north of 50% net margins, yielding over $250M in net income. ENER owns 40% of the JV, which would add over $100M in equity income or more than $2.50 upside to earnings.
Even if they assume that technology is only rolled out to its current licensees (~75% of the market), full roll-out does not occur until 2010, and discount this value back by 25%, it would imply a current value of $15.
ENER has pulled back 20%+ following the $0.01 miss in the quarter. The firm would look to aggressively add to positions. ENER is trading at a discount to the solar industry even though it has similar expected growth rates and the best balance sheet. They also believe that the company is likely to announce an additional two PCM licensees (possibly MU and Hitachi) over the coming months.
Reits Buy and $47 tgt.
Notablecalls: You better buy this one early on! Actionable call alert! See archives for additional color.
2 comments:
PCM is a big deal. In a nutshell, it is a memory that operates like flash, but at DRAM speeds. Eventually, it will be a eat into both, the same way flash substitutes for hard disks in many applications. There will be one or more big winners in PCM, like SNDK was in flash, problem is to figure out who.
nice comments, dcxavier!
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