|
|
|
|
Tuesday, June 03, 1997 Monday, Iomega closed at $18 3/4, up $1 3/8 (+7.91%). TODAY'S RECAP: Iomega made one of its largest single-day moves this year just before the market closed yesterday, and there was some confusion and speculation on why the stock jumped as it did. There were a number of announcements related to Iomega drives -- number of Zips shipped as of May 1997, new Micron OEM, Gateway providing Zip and Jaz -- as well as some discussion of previous announcements from Sony, HP and Dell. Coincidentally, the "day" began with ~Benjamin70~ offering two models of stock valuation which indicated that IOM's current price is a fair one. Needless to say, this topic generated a number of posts both pro and con (some nice, others not so much). This joined with the topic of the number of Zip drives shipped -- many posters had specific questions about IOM's press release. It was a very active board yesterday, to say the least, with some degree of anticipation over what the next trading day will bring. INDEX: Use the Search or Find feature of your word processor to locate the article number (Find: 1++, 3++, etc.) - or use AOL's Edit>>Find in Top Window Feature. If Find in Top Window is dimmed, just click on some text, anything, in the IOM Today window and try again.
1++ Benjamin70 starts with a long but detailed post on IOM's stock
valuation
Recap written by TMF Weekly; posts
compiled by TMF Weekly. As always, the following posts represent the thoughts of our contributors, not those of The Motley Fool. And now, the Best of the Board...Started 9:01pm ET 6/1/97.
1+++++++++++++++++++++++++++
Subj: 2 Fast and Easy Valuations I thought I'd take a quick look at two simple valuations -- things even the numbers-phbic folks can do at home -- in response to Holloway's recent "challenge" about proving IOM is undervalued. It seems that some folks believe IOM is undervalued because the Street believes the LS120 "hype" and that IOM gets no respect. I'm not so sure. I'll explain using only numbers, no hype, no unsubstantiated crap either way. Pure estimates, which, like it or not, are a major tool of valuations. The first valuation: PE/growth A simple rule of thumb (that has exceptions, both deserved and as inefficiencies of the market) is that a company's PE should equal its long term earnings growth rate. Obviously, for small cap companies with no or negative earnings, this isn't applicable, but for companies that have a year plus of decent positive earnings, it is a simple yet pretty good basic valuation. So, how does Iomega fare? Long-term isn't available (as in 3 or 5 years or more, which in tech is pretty silly anyway), only 1998 numbers. Current mean EPS for 1997 is $0.85 and for 1998 it is $1.14. That gets us a 34% EPS growth rate in 1998 over 1997. Current PE, according to AOL is a smidgen over 33. Seems pretty close to me. Another point or so and it equals out, but so does the rounding. :-) Now, before folks start wailing that the analysts have low-balled, that no one knows what IOM will do long-term, that these estimates will be positively blown-away, that is all theory, opinion. Hence, we have a market. Hence, folks sell and folks buy, folks make money, folks lose money. (and Iomega has yet to "blow away" numbers anyway. A 100%+ blowout, which happens to some companies, is not Edwards' style. Not commenting on it, just making the observation) However, merely looking at the first valuation many money managers do, it isn't impossible to theorize that perhaps the LS120 and all that brew-ha-ha isn't keeping the stock "down." Perhaps, based on published estimates, many folks see Iomega as fairly valued given all available earnings information. The Second Valuation: Price to Sales Another fairly simple valuation and a standard one when looking at a company. it does involve looking at "comps", which, for Iomega is somewhat difficult as ask any two people and they'll probably tell you different companies to which Iomega's price to sales ratio should be compared. Before we get to that, however, let's look at IOM's price to sales. Simply put, we compare Iomega's price (market cap without debt for our purposes) to sales. With 130+ shares (fully diluted gets us over 133) and a stock price in the mid $17's, we get a market cap of $2.3 billion. A strong mid-cap area. With sales estimates hovering around the $1.7 range, give or take (since these are all such large numbers, the slack either way is relatively unimportant, either with market cap or sales). 2.3/1.7 gets us a price to sales ratio of 1.35 So, we can say that Iomega is trading for around 1.3 this year's sales. Going by memory, I thought the ballpark estimates for 1998 were in the $2.3 billion range, which would mean that Iomega is trading for 1 times next years sales. The problem now, then, is finding comps. The quick, perhaps flawed but easy solution is Seagate, with market cap of around $10.7 billion (fully diluted, 263m shares). With revenue estimates of $9.5 billion on the year, Seagate's price to sales ratio is slightly over 1.1 and with estimates of $11.75 billion for next year, Seagate's price to next year's sales is under 1, closer to 0.9. Seagate's market cap: around $10.7 billion Price to sales 1997: 1.1 Price to sales 1998: 0.91 Quantum's market cap: around $2.5 billion Price to sales 1997: 0.48 Price to sales 1998: 0.38 Western Digital's market cap: $2.6 billion (fully diluted) Price to sales 1997: 0.59 Price to sales 1998: 0.46 Komag's market cap: $1.6 billion (fully diluted) Price to sales 1997: 2 Price to sales 1998: 1.64 Read-Rite's market cap: $1.0 billion (fully diluted) Price to sales 1997: 0.84 Price to sales 1998: 0.67 Compare these to Iomega (below) and perhaps the Street's "disrespect" of Iomega becomes clearer. Of course, ALL of these valuations are based on estimates (analysts), so they are not written in stone. Hence, new information, like an earnings surprise, moves the stock as it gets incorporated into the valuation. Iomega's market cap: $2.3 billion (fully diluted) Price to sales 1997: 1.3 Price to sales 1998: 1.0 As for the value of the comps, well, there is a strong arguement that Iomega should not be compared to the rest of the storage sector because their business model is quite different it three specific ways: First: Iomega is not dependent mostly (more than 70%) of OEM sales so a slowdown in new PC purchases while will most likely have some effect on IOM's sales, will not neccesarily have a drastic effect. Two: Iomega essentially recieves an annuity with every drive purchase. The other storage makers do not sell products that generate repeat and high margin sales over the lifetime of the purchase (I am, of course, referring to those all imporant disk sales). Three: Iomega's products have strong intellectual property rights and are not commodity products in a commodity pricing enviroment. However, some disk mankers do have much higher net margins than Iomega, a counter-arguement to this one that at least deserves mention. So, what against whom should Iomega's price to sales ratio be compared? I don't know, but I would wager than many money managers doing the math using the industry code on Iomega's own SEC documents and end up with some of the above. Looking at the PE/growth valuation and the price to sales valuation, Iomega certainly doesn't look undervalued. It doesn't look like a sky-high balloon either (anyone remember that great kids' book called "The Red Balloon"?), but one that seems, based on all currently available financial estimates and based on these two simple valuations, to be pretty much fairly valued. Benjamin P.S. I won't be around much so please, none of the "where's Ben, has he gone short again stuff." I promise (or threaten)... I'll be back. <G> 2++++++++++++++++++++++++++++
Subj: Re: 2 Fast and Easy Valuations I would suggest you to take a look at the numbers more carefully.Current P/E of 33 is based on trailing EPS of 0.52,not estimated 97 EPS of 0.85. In that case P/E will be 20.4 and 98 multiple will be 15.2..So you should compare 97 multiple of 20 with 98 over 97 growth of 34%.That is why it is approximately 40 % undervalued(Fair price of 30) 3++++++++++++++++++++++++++++
Subj: Re: 2 Fast and Easy Valuations Benjamin70 wrote: << Long-term isn't available (as in 3 or 5 years or more, which in tech is pretty silly anyway), only 1998 numbers. Current mean EPS for 1997 is $0.85 and for 1998 it is $1.14. That gets us a 34% EPS growth rate in 1998 over 1997. Current PE, according to AOL is a smidgen over 33. Seems pretty close to me. Another point or so and it equals out, but so does the rounding. :-) >> IMO, this is a flawed analysis. You ignore all the growth that is going to happen between 3/31/97 and 1/1/98. Trailing 12-month EPS as of 3/31/97 = $0.52 Trailing 12-month EPS as of 12/31/98 = $1.14 (btw, this is an old number as H&Q upgraded) Growth from 3/31/97 to 12/31/98 = 119% or 57% annualized 57% growth vs. a trailing PE of 33 looks undervalued to me. About 42% undervalued. Fair value is then pegged at $29 5/8. << So, what against whom should Iomega's price to sales ratio be compared? I don't know, but I would wager than many money managers doing the math using the industry code on Iomega's own SEC documents and end up with some of the above. >> It could be possible that Wall Street types mistakenly value IOM vs. SEG and its ilk. In fact, I think its highly likely as you never hear any Wise quoted as talking about Iomega's disk sales. All they ever do is talk about drive sales. But we know its the disks... I would compare Iomega to the other computer peripheral companies that are leaders in their field: US Robotics
3Com
Adaptec
American Power Conversion
Although I think PSR is a dead end to some degree. MF Mom once showed how PSRs (with tech stocks) seem to relate more to sequential (quarter to quarter) growth rates than any other variable. The only valuation that is used on Wall Street a lot but never done on this board is some kind of discounted cash flow analysis. I would be very interested to see how Iomega stacks up against the above companies (and WDC and SEG) using that analysis. Iomega only recently got its balance sheet together and became cash flow positive from operations. I have the sneaky suspicion that its this analysis (if its really a valuation problem) that's holding the stock back right now. I wouldn't overlook the fact that most stocks outside the S&P 100 have been in a bear market for almost 12 months, IMO.
TMF Keeler 4++++++++++++++++++++++++++
Subj: Merisel June Hot Lists - Iomega Merisel Hot Lists June 1997 Iomega items: Var Hot lists: http://www.merisel.com/varhotlist.html HARD DRIVES 1.Zip Drive 100MB Parallel Port Solution * Iomega * PC 2.Caviar 2100 2.1GB EIDE * Western Digital Storage * PC 3.4.3GB Pluggable Wide-Ultra Drive * Compaq * PC
TAPE DRIVES 1.Ditto 2GB Insider Internal * Iomega * PC 2.TapeStor 3.2GB * Seagate * PC 3.HP SureStore 5000I Internal DAT * HP Colorado * PC Macintosh Hot List June 1997 ACCESSORIES 1.Zip Disk 100MB * Iomega 2.EtherLink III PCMCIA TP Cable * 3Com 3.Universal Macintosh Adapter II/LC/LC II * ViewSonic 4.Jaz Disk 1GB * Iomega 5.Macintosh+/ImageWriter II Cable * Belkin Compon 5+++++++++++++++++++++++++
Subj: Re: New Sony Zip? The press release from Sony was quite effusive about the attractiveness and functionality of the Zip w/multimedia. in fact, the release read like Iomega PR as much as Sony. could be that 1) Sony is searching for a hook to distinguish its computers from others on the market that don't push the Zip connection heavily; 2) Sony has decided that its emphasis on multimedia ease on its computers (and its own predominant image as a music/films/entertainment company) will be enhanced by the Zip name--which means, clearly, that Zip is now being perceived to an ever greater degree not just as a portable storage/daily backup device but as a multimedia device. << "Our new computers offer a complete digital imaging and creative home computing and entertainment package to a broad range of consumers," said Tac Sugiyama, director of marketing for PC products, Sony Information Technologies of America. "The Zip drive is a perfect complement to these systems, enabling our customers to truy maximize the potential of digital imaging." >> Paul Loop 6++++++++++++++++++++++++
Subj: Gateway offers Jaz & Zip You can now get Jaz and Zip at the same time. Check Web page out. They no longer have only 1 Iomega product limitation. Called Gateway and confirmed. 7++++++++++++++++++++++++
Subj: Re: 6 Million Zips Shipped Jackof York, <<You are insightful! However, your second question is more important. Does this 6 million figure include OEM sales and the two licensee? If yes, then oh boy!!!!!!>> This most definately only includes IOM zips. MCI and NEC (not yet on line) sales of zips are not counted. This was confirmed by IOM earlier when we had the 5 million announcement. What this Sony OEM says to me, is that production is not as severe a problem as I had thought. I can not see IOM signing up new OEM's if they were hard pressed to supply the ones that they had. This is VERY encouraging to me. Fool On, Robert 8+++++++++++++++++++++++++
Subj: Dear Mr. Hype Tom, First, please don't call me "Mister", it makes me very nervous. As for my delay in response to the questions first posed by CayugaDan, his last post about this was correct - I did take the weekend off, and have just spent the a couple of hours catching up on the posts of the last three days. As for the questions. First, I have no relationship with any of the companies involved with the manufacture, sale or promotion of the LS-120 (or LS-120 disks). Second, I've had conversations with three different companies in the LS-120 group (Compaq, Imation and OR Technology). Third, with the exception of a conversation I had with IMN's investor relations officer in the capacity of a professional portfolio manager (in which I called to request a package of investor materials and, in which we talked mostly about the genesis of IMN as a separate entity) any other conversations I have had were as either as an individual investor, or someone interested in obtaining LS-120 drives. Last Fall, probably out of frustration and encouraged by the availability of a sympathetic ear, one person in particular gave me some insights about the lack of available supply (i.e. Compaq was getting virtually all of the limited number of drives available) which was later corroborated by the production numbers cited by Imation in their Q4 '96 press conference. The person I talked to was never very precise, and as suggested above, was probably telling "tales out of school" out of real frustration with the lack of availability of LS-120 drives. I cannot say for a fact that the characterization of the circumstances presented to me was accurate, but the person I talked with seemed sincere and I have no reason to believe that I was being misled. Again, there were never any numbers cited (not even loosely) but it did lead me to believe that the LS-120 ramp (for whatever reason) was quite slow to progress, at least until the very end of 1996. As a matter of fact, for that reason I was not at all surprised when I read (I believe on this board) not long ago that MCI was not yet producing Zip drives in any substantial quantity (even though they signed the original licensing agreement IO last Fall) and, similarly, that NEC will not begin producing drives until sometime in Q3. FWIW. Warren P.S. Thanks to Cheeze for defending the fact that I didn't hop right and respond to this message as soon as it was posted. Cheeze is also correct in his suggestion that anyone can pick up the phone and call companies involved with the LS-120. All it requires is the desire and the initiative to do so. _______________________________ End Report. Posts covered through 9:00pm ET 6/2/97. _______________________________
WE
DELIVER - Get IOM
In Fooldom Today delivered
|
||||||||||
|
|||||||||||
