Also raises Price target for year end 2013.
Having spent considerable time reviewing the just announced results and reflecting on the companies actions the following is what i'm seeing....
1) My initial price target for year end 2013 was 2.50 +. I'm hereby raising that to 3.00.
2)I believe that EPS by Q 4 will be in the .30 cents range versus my previous estimates of .20 to .25.
3)I believe the stock will be in for what is essentially a repeat of what was seen following the Q4 2011 results. Recall those results were .25 cents and subsequently drove a stock price of about 2.70. I believe our results this Q4 will exceed that given the remaining cost cutting and hence..my 3.00 price target.
4)Q1 is going to be difficult and perhaps even worse than the results seen in Q1 2012 (which was -10 cents). To understand that one has to consider that 10 cent loss and then the worsening margins that developed over the last year. (drop of 4 to 5%). On the plus side I think we are going to see a lot of cost cuts in the form of employee reductions this quarter helping to offset that and what is likely to be a full 200M in cost cuts total this quarter. Also helping that is the margin recovery we saw in Q4. It also remains to be seen whether the transition to a new CEO impacts the co's decision to cut the costs necessary. In any event...plan on Q1 being a rough quarter with EPS in the -8 to -12 range depending on the above circumstances..
5)Q2 will be better with another 200M in cost cuts and we will start to see daylight towards our year end goal. A new CEO will likely be in place who will perhaps announce an increase even in the cost cutting plan.
6)Q 3 in my view will be better than Q3 2011 was setting the stage for a strong Q4..
7)Q4...30 cents in EPS....and a 3.00 target by the reporting date.
Nearer term I remain a little more neutral on the stock. I think the CEO issue as well as the Q1 pressures will help to keep somewhat of a lid on further appreciation. At the same time I see the current price as outstanding for an entry point or to add to ones position provided one has the outlook for the time frame noted above. IMO..this will be an almost 100% gainer from this level by the end of Q4.
In terms of analysts recent calls ..I think that Morgan Stanleys upgrade to overweight best reflects where to be with this stock. Keep in mind that the above is based SOLELY on cost cutting as well.
Additional pluses would be business improving and patent income..neither of which are factored in at all. Risks I see as being fairly minimal as clearly demand is accelerating in this sector given the whole 4 g upgrade issues.
medium to longer term...Strong buy..target 3.00
Nearer term....more neutral on the price but overweight in the stock...
Sentiment: Strong Buy
Analysts right now are at -10 cents for Q1 which coincides with my -8 to -12 estimates.
they're at -5 for Q2 which I also think is about where we'll be.
If we can do -8 for Q1 I'll be very happy . I would have quite firmly predicted that prior to hearing that Ben is leaving. That could cause some delay on some of the cost cutting though which is why i've opened up my estimates to the -12 range.
Again..what happens to the price of the stock NEAR TERM is very up in the air i think. I DON'T see it falling below the 1.50's range though that we've seen because of the cost cutting that will take place in 2013 as well as our cash position and so the real issue is when does it move up beyond our current 1.50's to 1.70's range? I think Q1 and Q2 will keep some pressure on that as we now enter another phase in this restructuring and wait on a New CEO's arrival.
The thing is this however. Q1 could QUICKLY be discounted given the stock likely has a lot of upside beyond that coming into the end of the year. Even under the current cost cutting plan we are looking at ANOTHER 800 million in cuts THIS YEAR. Add those results into Q4 2012's and i think you can see that by Q4 this year we're going to be in some very good shape.
Given that i'd personally suggest more or less ignoring Q1 and Q2 losses. and positioning now for the move to what i think will be about 3.00 by the end of this restructuring. It's ALSO possible a new CEO will expand on this and add in another 400M or so. I think that's the boards intention in bringing on a new CEO. We could ALSO see some patent income and/or a buyout even.
And so...I'd say we are at the bottom even given a weak Q1. Well...94 cents was the bottom but those days are gone for good. 1.50s to .60's is a great price IMO with an eye towards this time next year to hold these positions to.
Selling some out of the money nearer term calls might be also a good way to play this as we move through this year to generate some cash.
I also think that looking beyond early next year..we'll move past that 3.00 level as well. Again..a new CEO is being brought on to do more than Ben had planned and my 3.00 target is only taking Bens plan into account. I think business will improve as well as more cost cuts will happen making this a very solid multi year investment. At this point i think in time we'll be back to at least the 5 to 6.00 level. And maybe more.
This year will go by quickly. We're already halfway through Q1 as it is. I wouldn't dwell on trying to get a better price than the high 1.50 to 1.60's because this isn't going to last for very long in my view.
Sentiment: Strong Buy
BTW..note that my views are basically what Morgan Stanley is also saying in their recent upgrade to overweight. While they missed the very nice move up from the lows to here..i think they've now got it right. Their target is 2.67 whereas mine was just adjusted upward to 3.00. I think theirs will wind up being the lower end of the range we'll see in a post restructuring ALU period. (Q4 2013 reporting period). I say that because i think a new CEO will be more aggressive even about additional cost cuts and an extension of our current plan. That's why Bens out and a new CEO will be in. They wanted more. I also think a great point to reflect back on was in late 2011 to early 2012 when this stock ran from the 1's to the mid to upper 2's. It did that on 25 cents in EPS in Q4. I think we can get to 30 cents this year. I ALSO think though that this time it will be more permanent. 2012 isn't going to happen again anytime soon to ALU.
I again say that Q1 and 2 are going to be money losers and may keep a lid on this stock price.
The CEO uncertainty isn't going to help in the short term either. BUT.....I think that we've seen the lows.....1.50's and .1.60's are a GREAT buying in point and Morgan Stanley was right to upgrade this given all that is now happening. There's more certainty than there was at the 1.00 level with the loans and execution plan now in place. The Board has now also spoken with their actions to put a new CEO in. I think the loans gave them the confidence and time to do just that. What the board wants is simple I think. They're seeing what NSN is doing and has done and is saying..why isn't that us too? With a new CEO...THY WILL BE DONE with ALU as it is with NSN.
There will be MORe job cuts. Much deeper job cuts. MAYBE 15 to 20k in cuts (NSN did 17k remember?)...and ALU is going to be different. A much better...more profitable company.
If we do all this..3.00 will be just the start. 5..6..8 is all possible after that.
The nearer term question is..when does the stock price start to reflect all of this? I just don't know and can't pinpoint that with enough certainty to even suggest it. I think however that we're both at the lows and that ALU is still dirt cheap. I mean..this stock is CHEAP. Look at their peers and their respective market values. and we're at 3 1/2 billion. Eric is 10 times this....
My feeling is that while Q1 and 2 will provide some overhang on this we might soon break out of this range anyway. Because year end is not that far and Q3 is going to be a decent one with all the cost cutting.
ALU..buy and HOLD. When we hit 2.00..continue to HOLD. Resist the trading temptations.
We're going higher.....
Sentiment: Strong Buy
I also ways enjoy and appreciate your comments my friend but am afraid we be stuck in the mudd here for several months. Only real news will move us from here.Sell of the sub unit, big unforeseen contract,ect.
Been a nice run and will continue to hold half my original purchase.
Having read the above, the best entry point is yet to come. Stay out of this stock until we see what Q2 looks like. Agree that Q1 will be very disappointing to Wall St. and believe that the CEO transition will NOT be very smooth. May take 6-12 months for an outsider to properly take over this transition. If Tufano becomes CEO, then it will be quicker and smoother. Barring another meltdown(debt or European turbulence and/or US recession), the second half of 2013(probably around August) should see significant PPS increase.