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Cypress Semiconductor Corporation Message Board

  • cubbiesfan98767 cubbiesfan98767 Jan 30, 2006 10:16 PM Flag

    How to value CY - keep the debt in mind

    When looking to buy CY to take advantage of embedded SPWR holdings, don't forget the $400 of nebt debt on the balance sheet that has to be considered when valuing CY proper. Also CY owns 87% of SPWR. So start by valuing CY somewhere between an EV of 1x forward sales (that would be about $550 million once you correct for the debt, and a trough for the semi companies) and 2x forward sales ($1,450 million.) Then multiply 87% by the market cap of SPWR and add the two numbers together to value CY. If you get to $23 or $24, keep in mind that the market is giving CY a discount to the full embedded value of SPWR because if CY were to distribute all its SPWR shares tomorrow, the stock would be hit with quite significant selling pressure. So between 10 and 20% would be reasoanble for the SPWR piece.

    So in short,

    CY valuation = (SPWR market cap * 0.87 * 0.85) , I'm using 15% discount + a number between $550 million and $1.45 billion depending on whether you value core CY at 1x sales or 2x sales. Alternately, you can view the first option as a "trough" price, and the second as a "target" price.

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    • Cubbiesfan,

      Agree on the debt can't be neglected.

      You probably decide EV/S between 1 and 2 from CY historical EV/S value. But historically, CY has never had such a large portion of consumer & computation products (38%), which should qualify for higher EV/S.

      I use run-rate instead of forwarding sales since I have no idea whether T.J. will fumble on something again.

      CCD = 90 mil(run-rate) x 4 x 3.5 = 1260
      others except SPWR = 119.2 mil x 4 x 1.5 = 715
      SPWR = $39.4 x 52 mil shares x .85 = 1742

      total EV = 3717 mil
      net debt 400 mil
      net expected CY value = 3317 mil
      divide by 143 mil shares = $23.2

      Others include memory, sensors & Data communication div. (DCD should not be at 1.5 EV/S but sales is in the down trend.)

      All these might be meaningless, anyone can plug in any formula depending his optimism. But CY is undervalued for sure.

      T.J. did fumble terribly on Psoc. If he makes Psoc a growth story, the entire CCD div. is a growth story. CY will have two growth stories to negotiate with the market, then we don't even need to scratch the numbers here.

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