Motorola
Investment Notes
MOT
Please see disclaimer at bottom of this document
February 13, 2006 (21.50)
Started buying MOT at $12.30 (Freescale adjusted) in January 2002. I bought in 2002 because of the opportunity of gains via a potential telecom depression. Since 2002, the price has increased to $21.50. My projections of Sales, typical metrics and other potential expectations were met and beat by MOT. Not necessarily company specific, as it may have been industry specific.
Below on 2/13/06, you will see some quick estimates. I think that I am using conservative metrics, yet, I have NOT double checked all metrics. There is an obvious difference in ROI computed under 2 methods. Theoretically, the lesser of the ROI could be potentially considered a margin of safety.
Large vendor in the wireless handset market, wireless infrastructure market and cable equipment market.
Standard and Poor’s listed bond rating at BBB+ on 2/11/06.
Notes:
1. Shares outstanding on 12/31/05 is 2599.9
2. Guidance given during CC on 1/19/06
a. eps for 1Q06 $0.25 – $0.27 including stock option compensation expense
b. estimated annual stock option expense b/w $250 – $300M annually, spread evenly quarter by quarter.
c. 1Q06 shares outstanding expected to be 2.56B shares.
d. 1Q06 Tax Rate expected at 36%, also expects that to be number for all of 2006.
e. Expects improvement on operating margin, which is currently 11.8%. They claim that is “excluding the significant items I discussed earlier. I do not know if he is referring to stock option compensation or the Telsim collection or all of the above.
3. estimates I have collected:
Revenue
2006 | 2007 | 2008 | |
Citigroup | $41,038.6 | NMF | NMF |
S&P | NMF | NMF | NMF |
Morningstar | NMF | NMF | NMF |
Morgan Stanley | $40,716 | 43,911 | 46,765 |
JP Morgan | 40,636 | 42,481 | NMF |
CIBC | 42,208 | 44,470 | NMF |
EPS
2006 | 2007 | 2008 | |
Citigroup | $1.34 | 1.45 | 1.54 |
S&P | 1.25 | 1.45 | |
Morningstar | NMF | NMF | NMF |
Morgan Stanley | 1.35 | 1.59 | 1.66 |
JP Morgan | 1.18 | 1.40 | NMF |
CIBC | 1.35 | 1.54 |
4. Morgan Stanley expects share count to be as follows:
2005A | 2,525 |
2006 | 2,546 |
2007 | 2,514 |
2008 | 2,489 |
2009 | 2,502 |
5. Review of DEF 14A filed 3/14/05
a. Stock Ownership Table from Def 14A
Name | Ownership |
Ed Zander | 1,059,445 |
Mike Zafirovski | 3,315,677 |
All Directors and nominees | 10,214,716 |
Officer’s and director’s appear to own b/w 3.5% to 3.9% of common stock.
b. I looked at compensation table. MOT does not appear to be shy with paying their head guys. Many make in excess of $1M. Zander in 2004 cleared $6.5M in compensation. Account for RSA’s he made another $9M and has options on 2.6M shares.
c. Option grants in Fiscal 2004 , expiring in 2014, typical base price is $16.30/ share, yet Zander has most at exercise price of $12.97.
# of shares | % of total options to employees | |
Zander | 2,570,480 | 3.92% |
Zafirovski | 894,080 | 1.36% |
Devonshire | 502,920 | 0.77% |
Brown | 474,980 | 0.72% |
Nemcek | 474,980 | 0.72% |
d. Retirement plans appear very friendly to officers.
Name | Comp covered by plans | Credit Service |
Zander | 1,500,000 | 1 Year |
Zafirovski | 962,308 | 4 years 8 months |
Devonshire | 642,308 | 2 years 10 months |
Brown | 583,654 | 2 years 0 months |
6. Some quick back of the envelope valuation scenarios. I think my projections were conservative. This is merely a road map for moving forward. I used eps rates of 8% for 10N and 3% thereafter.
EV Analysis | |
Share Outstanding | 2,600 |
Share Price | $21.50 |
Market Capitalization | $55,900 |
Less: Cash and Short Term Investments | -$14,785 |
Add: Long Term Debt | $3,806 |
Enterprise Value | $44,921 |
EV per share | $17.28 |
Stockholders’ Equity | 16,673 |
Book Value per Share | $6.41 |
Please keep in mind that $1.11 below in eps is below all estimates I have seen. I am trying to be as conservative as possible.
Quick Projections 2006 | |
Revenue | $41,000 |
Net Margin | $4,510 |
Tax Rate | 36.00% |
Corporate Taxes | $1,624 |
Net Income after Taxes | $2,886 |
Shares Outstanding | 2,600 |
eps | $1.11 |
Below is an interesting way I valued Motorola. There are so many possible road blocks, yet as I mentioned above, this is a road map for me. So far this method seems to be the method I am favoring. It seems logical, yet probably very far from what will happen in the future. I have not assumed dividends, as I am assuming the earnings become future equity. As I write that, I think perhaps here is a flaw in my analysis. I wonder if I am double counting earnings and equity. I don’t think so, but I need to continue to think about that and refine it as well.
FV of current equity and future earnings | 13-Feb-06 |
Tangible Book Value | $16,673 |
Net Profit | $2,886 |
Growth Rate of Net Profit for 10N | 8% |
Growth Rate of Net Profit after 10N through 15N | 3% |
FV of Net Profit in 10N | $6,232 |
FV of Net Profit in 15N | $7,224 |
FV of tangible book value plus Net Profits for 10N | $77,810 |
FV of tangible book value plus Net Profits for years 11 – 15N | $123,287 |
Current Enterprise Value | $44,921 |
FV of tangible book value plus Net Profits for 10N | ($77,810) |
Years | 10 |
ROI on tangible book value plus Net Profits for 10N | 5.65% |
FV of tangible book value plus Net Profits for 10N | $77,810 |
FV of tangible book value multiplier | 2.50 |
FV of Tangible Book Value using BV multiplier in year 10 | $194,524 |
Current Enterprise Value | $44,921 |
FV of tangible book value plus Net Profits for years 11 – 15N | ($123,286.84) |
Years | 15 |
ROI on tangible book value plus Net Profits for 15N | 6.96% |
FV of tangible book value plus Net Profits for 15N | $123,287 |
FV of tangible book value multiplier | 2.50 |
FV of Tangible Book Value using BV multiplier in year 15 | $308,217 |
Potential Future EV using BV multiplier above | |
Current Enterprise Value | $44,921 |
FV of Tangible Book Value using BV multiplier in year 10 | ($194,524) |
Years | 10 |
ROI on FV of Tangible Book Value using BV multiplier in year 10 | 15.79% |
Current Enterprise Value | $44,921 |
FV of Tangible Book Value using BV multiplier in year 15 | ($308,217) |
Years | 15 |
ROI on FV of Tangible Book Value using BV multiplier in year 15 | 13.70% |
Below is an alternate method. I don’t think it is an appropriate method, as it gives no credence to real assets that will exist in 15 years. Nevertheless, I kind of like seeing that a potential worst case scenario could still be an annualized return of 3.15%.
Alternate Method (Sanity Check) |
|
FV of Net Profit in 15N | $7,224 |
P/E estimate | 9.942 |
Market Cap on above | -$71,821 |
Years | 15 |
Current Enterprise Value | $44,921 |
ROI in 15N using above | 3.15% |
The following sanity test uses a net margin multiplier. This method also doesn’t take into account real assets which would exist in 15N.
Potential Revenue Growth | |
Current Revenues | $41,000 |
Growth Rate of Revenues for 10N | 8.00% |
Growth Rate of Revenues after 10N through 15N | 3.00% |
FV of Revenues in 10N | ($88,516) |
FV of Revenues in 15N | $102,614 |
FV of Revenues in 15N | $102,614 |
Revenue Multiplier based on Al Meyer Rule of Thumb net margins | 2 |
Possible Market Cap year 15 | ($205,228) |
Years | 15 |
Current Enterprise Value | $44,921 |
ROI in 15N using above | 11% |
Intrinsic Value Work from separate spreadsheet.
AAA Corporate Bond Rate | ||||
Company | Motorola | Motorola | Motorola | Motorola |
Symbol | mot | mot | mot | mot |
Report Date | 21-Jul-00 | 18-Jan-02 | 1-Feb-03 | 10-Feb-06 |
Report Used | Value Line | Value Line | rbc | rbcpa |
Base Year | 2000 | 2002 | 2002 | 2006 |
Price | 33.000 | 13.720 | 8.250 | 21.500 |
30 year Bond Rate (AAA) | 6.75% | 6.75% | 5.75% | 5.75% |
S & P Bond Rating | BBB+ | |||
Sales Per Share | 17.90 | 12.00 | 11.70 | 15.77 |
Price/Sales | 1.84 | 1.14 | 0.71 | 1.36 |
Projected R & D | 1.42 | |||
Growth Flow Ratio (s/b <12=nrml) | 31.43 | 171.50 | 58.93 | 8.50 |
Cash Flow Per Share | 2.15 | 1.00 | 1.05 | 1.55 |
Capital Expend Per Share | 1.40 | 0.50 | 0.25 | 0.30 |
Net Cash Flow Per Share | 0.75 | 0.50 | 0.80 | 1.25 |
Price/Cash Flow | 15.35 | 13.72 | 7.86 | 13.87 |
Price/ Net Cash Flow | 44.00 | 27.44 | 10.31 | 17.20 |
Cash King (s/b > 10 % ) | 4.19% | 4.17% | 6.84% | 7.93% |
Total Interest Coverage | 15.00% | 15.00% | 15.00% | 15.00% |
Growth Rate | 26.50% | 12.50% | 12.50% | 10.00% |
Earnings Per Share | 1.05 | 0.08 | 0.14 | 1.11 |
Projected EPS Year 2 | 1.40 | 0.60 | 0.33 | 1.22 |
Projected EPS Year 3 | 1.77 | 0.68 | 0.37 | 1.34 |
Projected EPS Year 4 | 2.24 | 0.76 | 0.42 | 1.48 |
Projected EPS Year 5 | 2.83 | 0.85 | 0.47 | 1.62 |
Dividends Per Share | 0.17 | 0.17 | 0.16 | 0.16 |
Dividend Yield | 0.52% | 1.24% | 1.94% | 0.74% |
Book Value Per Share | 10.05 | 5.38 | 5.14 | 7.45 |
Intangibles Per Share | 0.00 | 0.00 | 0.00 | 0.00 |
Net Book Value Per Share | 10.05 | 5.38 | 5.14 | 7.45 |
Price/ Net Book Value | 3.28 | 2.55 | 1.61 | 2.89 |
Return on Shr. Equity | 11.00% | 0.00% | 2.00% | 17.31% |
ROE/PE (current) | 35.00% | 0.00% | 3.39% | 89.37% |
ROE/PE Year 2 | 46.67% | 0.00% | 8.00% | 98.22% |
Working Capital | 5625 | 4560 | 7420 | 15362 |
LT Debt | 3200 | 6300 | 7500 | 3806 |
Shr. Equity | 21555 | 15165 | 11760 | 16673 |
LT Debt / Working Capital | 56.89% | 138.16% | 101.08% | 24.78% |
LT Debt / Shr. Equity | 14.85% | 41.54% | 63.78% | 22.83% |
Cash | 5643 | 6370 | 14785 | |
Current Assets | 20001 | 18981 | 16577 | 27984 |
Inventory | 5446 | 3250 | 2869 | 2522 |
Current Liabilities | 14781 | 11345 | 9517 | 12622 |
Short Term Debt | 2717 | 1457 | 448 | |
Quick Assets | 14555 | 15731 | 13708 | 25462 |
Current Ratio | 1.35 | 1.67 | 1.74 | 2.22 |
Quick Ratio | 0.98 | 1.39 | 1.44 | 2.02 |
Flow Ratio (s/b < 1.25 ) | 1.35 | 1.55 | 1.27 | 1.08 |
P/E Ratio Current | 31.43 | 171.50 | 58.93 | 19.37 |
P/E Ratio Year 2 | 23.57 | 22.87 | 25.00 | 17.62 |
P/E Ratio Year 3 | 18.63 | 20.33 | 22.22 | 16.02 |
P/E Ratio Year 4 | 14.73 | 18.07 | 19.75 | 14.56 |
P/E Ratio Year 5 | 11.64 | 16.06 | 17.56 | 13.24 |
Inverse P/E Current | 3.18% | 0.58% | 1.70% | 5.16% |
Inverse P/E Year 2 | 4.24% | 4.37% | 4.00% | 5.67% |
I/P/E to Bond Rate (Current) | 47.14% | 8.64% | 29.51% | 89.79% |
I/P/E to Bond Rate Year 2 | 62.85% | 64.79% | 69.57% | 98.69% |
Div Yield / AAA Bond | 7.63% | 18.36% | 33.73% | 12.94% |
PEG Ratio (Current) | 1.19 | 13.72 | 4.71 | 1.94 |
PEG Ratio Year 2 | 0.89 | 1.83 | 2.00 | 1.76 |
PEG Ratio Year 3 | 0.70 | 1.63 | 1.78 | 1.60 |
PEG Ratio Year 4 | 0.56 | 1.45 | 1.58 | 1.46 |
PEG Ratio Year 5 | 0.44 | 1.28 | 1.40 | 1.32 |
PEGY Ratio (Current) | 1.16 | 12.48 | 4.08 | 1.80 |
PEGY Ratio Year 2 | 0.87 | 1.66 | 1.73 | 1.64 |
Graham Ratio (current) | 103.20 | 437.36 | 94.58 | 55.90 |
Graham Ratio Year 2 | 77.40 | 58.31 | 40.13 | 50.86 |
Highest P/E Avg 5 + Years | 25.00 | 25.00 | 25.00 | 25.00 |
P/E (current) to High P/E | 1.26 | 6.86 | 2.36 | 0.77 |
P/E Year 2 to High P/E | 0.94 | 0.91 | 1.00 | 0.70 |
Intrinsic Value (current) | 42.09 | 1.75 | 3.59 | 24.21 |
Price / Intrinsic Value(current) | 78.40% | 785.36% | 229.88% | 88.81% |
Intrinsic Value Year 2 | 56.12 | 13.10 | 8.46 | 26.61 |
Price / Intrinsic Value Year 2 | 58.80% | 104.72% | 97.52% | 80.81% |
Intrinsic Value Year 3 | 71.00 | 14.74 | 9.52 | 29.27 |
Intrinsic Value Year 4 | 89.81 | 16.58 | 10.71 | 32.19 |
Intrinsic Value Year 5 | 113.61 | 18.66 | 12.04 | 35.41 |
Company | Motorola | Motorola | Motorola | Motorola |
Report Date | 21-Jul-00 | 18-Jan-02 | 01-Feb-03 | 10-Feb-06 |
Price | 33 | 13.72 | 8.25 | 21.5 |
Growth Rate | 26.50% | 12.50% | 12.50% | 10.00% |
Price/Sales | 1.84 | 1.14 | 0.71 | 1.36 |
Price/ Net Cash Flow | 44.00 | 27.44 | 10.31 | 17.20 |
Price/ Net Book Value | 3.28 | 2.55 | 1.61 | 2.89 |
P/E Ratio Current | 31.43 | 171.50 | 58.93 | 19.37 |
P/E Ratio Year 2 | 23.57 | 22.87 | 25.00 | 17.62 |
Current Ratio | 1.35 | 1.67 | 1.74 | 2.22 |
Quick Ratio | 0.98 | 1.39 | 1.44 | 2.02 |
LT Debt / Shr. Equity | 14.85% | 41.54% | 63.78% | 22.83% |
LT Debt / Current Assets | 16.00% | 33.19% | 45.24% | 13.60% |
Return on Shr. Equity | 11.00% | 0.00% | 2.00% | 17.31% |
PEG Ratio (Current) | 1.19 | 13.72 | 4.71 | 1.94 |
PEG Ratio Year 2 | 0.89 | 1.83 | 2.00 | 1.76 |
PEGY Ratio (Current) | 1.16 | 12.48 | 4.08 | 1.80 |
PEGY Ratio Year 2 | 0.87 | 1.66 | 1.73 | 1.64 |
Graham Ratio (current) | 103.20 | 437.36 | 94.58 | 55.90 |
Graham Ratio Year 2 | 77.40 | 58.31 | 40.13 | 50.86 |
Growth Flow Ratio (s/b <12=nrml) | 31.43 | 171.50 | 58.93 | 8.50 |
Cash King (s/b > 10 % ) | 4.19% | 4.17% | 6.84% | 7.93% |
Flow Ratio (s/b < 1.25 ) | 1.35 | 1.55 | 1.27 | 1.08 |
Intrinsic Value (current) | 42.09 | 1.75 | 3.59 | 24.21 |
Intrinsic Value Year 2 | 56.12 | 13.10 | 8.46 | 26.61 |
Intrinsic Value Year 3 | 71.00 | 14.74 | 9.52 | 29.27 |
Intrinsic Value Year 4 | 89.81 | 16.58 | 10.71 | 32.19 |
Intrinsic Value Year 5 | 113.61 | 18.66 | 12.04 | 35.41 |
Intrinsic Value / Price (current) | 27.56% | -87.27% | -56.50% | 12.59% |
Intrinsic Value / Price Year 2 | 70.07% | -4.50% | 2.54% | 23.75% |
Intrinsic Value / Price Year 3 | 115.14% | 7.43% | 15.36% | 36.13% |
Intrinsic Value / Price Year 4 | 172.16% | 20.86% | 29.78% | 49.74% |
Intrinsic Value / Price Year 5 | 244.28% | 35.97% | 46.00% | 64.71% |
Disclaimer
If you are a client of ours, and if you have questions regarding Motorola, please call our office. If you are not a client of Redfield, Blonsky & Co. LLC Investment Management Division and are reading these notes, we urge you to do your own research. We will not be responsible for any person making an investment decision based on these notes. these notes are a “by-product” of our research. We are not responsible for the accuracy of these notes. We are not responsible for errors that may occur in these notes. Please do not rely on us to monitor or update this or any other report we may issue. In theory, we could come across some type of data or idea, which causes us to eliminate our long position of Motorola from our portfolios. We will not notify readers revisions to these notes. We are not responsible to keep readers of these notes updated for changes or material errors or for any reason whatsoever. We manage portfolios for clients, and those clients are our greatest concern as it relates to investing. Certain clients of Redfield, Blonsky & Co LLC may not have Motorola in their portfolios. There could be various reasons for this. Again, if you would like to discuss Motorola, please contact Ronald R. Redfield, CPA, PFS (partner in charge of investment management division).
Information herein is believed to be reliable, but its accuracy and completeness cannot be guaranteed. Opinions, estimates, and projections constitute our judgment and are subject to change without notice. This publication is provided to you for information purposes only and is not intended as an offer or solicitation. Redfield, Blonsky & Co. LLC and Ronald R Redfield, CPA, PFS, may hold a position or act as an advisor on any investments mentioned in a report or discussion.