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Hutchinson Technology Inc. Message Board

  • hunter__14 hunter__14 May 30, 2013 7:35 PM Flag

    PE Ratio

    How can HTCH support a stock a $6-$10 price when they will not be at breakeven EPS within the next year and not have anything close to a $1 EPS for several years?

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    • 3 reasons:
      1) They have piled a lot of investment into TSA+, so EPS understates free cash flow by close to $1 per share, with reasonable capex levels going forward.
      2) The operating leverage calls for pricing in some expectation of earnings rising significantly in the 2-4 year outlook. The difference between breakeven and $1 or even $2 is much less than your post lets on. They probably break even with quarterly production around 120-125 million units at this point. Another 25 million units a quarter, give or take, would give us annual EPS around $1. In this industry, that kind of production change can happen in the blink of an eye.
      3) They will probably be profitable in 2014. We are in a cycle of positive earnings revisions, and the company has certainly been priming us to expect a production uptick in the next couple of quarters.

      Sentiment: Strong Buy

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