At a price of $6.5 per share Brcd could buy back 24% of their fully diluted shares and be debt free (this includes buying back all converts).
I like to look at the operating cash flow of a company. Brcd generated $123.1 million in operating cash flow in 2004 or about $.465 cents per share. If paid out their cash flow as a dividend it would be around a 7.1% yield.
In 2005 Brcd could generate around $140 million in cash flow or $.528 per share and if paid out as a dividend this would yield 8.1%. So based on 2005 estimates of cash flow Brcd is selling at a forward multiple of 12.31.
So at the end of 2006 fiscal year Brcd could be debt free and over $700 million in cash. This assumes no further acqusitions.
If we assume that Brcd should sell at a multiple of 20 times their free cash flow then this is at least a $12 stock at the end of their 2006 fiscal year. This is a 85% return from the $6.5 level.
So what do we get in Brcd at the end of 2006?
1. A company that is debt free with over $700 million in cash. I estimate their cash flow at $0.60 per share while ML estimates their earnings at $0.40 per share in their 2006 fiscal year.
2. A company that bought their office builing in San Jose in the first quarter of 2004 for $106 million in cash. This will be an appreciating assets over time.
3. A company that will be making further small strategic acqusitions.
4. A buyout candidate.
5. A stock at current price has little downside risk.
6.. A stock that ML has a 12 month $9.5 target price.
So my two target price of $12 is not that much of a reach - a 36% compounded return over the next two years. I like companies that are debt free with cash in the bank. At the end of december 2005 they should have around $524 mlillion in the bank and be debt free.
One last thought is that if they bought back any shares at $6.5 it is like Brcd getting a 8% return this year on the stock repurchase money. They would be getting the cash flow per share of around $.528 per share. Interesting use of part of their cash. Of course buying back the converts at a discount may exceed this 8% return of the stock buyback.