It is not a difficult math that CY's SPWR holding worth about $10.2 for each share of CY. 52 mils (CY holds 7/8 SPWR) x $28 (SPWR price) divides by 143 mils (CY outstanding shares) = $10.2
Yet I don't know how many of you scratching heads like I do. Why CY traded $11 - $16 before SPWR IPO (then anticipated price was $5 to $13)? When SPWR really shot up to current price - $28, CY still trades at the middle point of the previous range. What's going on? Is this market blind? Aren't there too many idiotic CY shareholders doesn't know that CY holds a gem now? I made a some studies, let me summarize my observation as follows. (Your guys might have dsicussed this subject already, but since I am new kids in town, allow me to explore in this area)
SPWR's current price is phantom supported by only 1/8 floating shares. As soon as the gate is open, the rest shares flow into the market, the price will crash.
Unlike its peers ENER and ESLR, SPWR actually breaks even in most recent quarter. With better conversion ratio (20% vs. 15%, 12%), better efficiency in consuming Polysilicon chips, SPWR shouldn't be bashful to trade at similar EV/S ratio as ENER and ESLR. Some projected SPWR to make $200 mil rev 2006 with Phillipino facility on full run.
Con (break-up value based on P/S):
With CY's decision to harvest PSRAM, PLD and likely decision to harvest NSE, DCD and MID divisions should carry very minimum value. The entire "CY-SPWR" should trade somewhere 1.6 times P/S ratio. Adding $2.6/share netgative debt value, the current CY price is a bit undervalued but not a screaming buy.
1) P/S: In CCD division, Psoc is another category killer like SPWR with sales surging almost doubling each qurater and steadily growing USB and Timing clocks, where you find a semi stock less than 2 times P/S. Furthermore, this division carries gross margin exceeding 50%, 3 times P/S ratio may not be outrageous. Even you leave very low P/S value for DCD and MID, 1.6 P/S is still way too low a valuation for "CY-SPWR".
2 P/E: If CY decides to halt (harvest) the R&D at PSRAM and NSE, they essentially cut the loss at MID and NSE. With CCD's last Q eps 9 cents and DCD eps 2 cents, PSOC projected to grow to $115 mil. 2006, the entire "CY-SPWR" should make somewhere near 50 cents 2006. So "CY-SPWR" is definitely worth more than $10. Adding SPWR's $10.2, CY should worth more than $20. some target price runs as high as $27.
Criticism and comments welcome.
Floppy - Wife leaves for LV for fun, leave me watching light tower.
You can short sell SPWR. At least on Ameritrade.
>>>SPWR is not applicable to CY if its value not "useful" to CY. It is also not shortable. Therefore I try to lock its current transient value by shorting other two since I believe in SPWR's superiority.
Ok! Now we are more or less on the same page. I should apologize for my madness since I welcome criticism in the beginning. I am in this market for more than 10 years. As you suggested, I also persist a suspicious mind all the time. I do not promote to influence others for naive optimism. I should disclose early that I short ELSR and ENER trying to "lock-in" the value of SPWR within CY. SPWR is not applicable to CY if its value not "useful" to CY. It is also not shortable. Therefore I try to lock its current transient value by shorting other two since I believe in SPWR's superiority.
But the main reason I bring the topic over here is - something doesn't add up together, there is some discrepancy on the valuation. First, let me compare CY's 2004 revenue and 2006 project revenue - I know, you can say that again - "projected".
MID 395 mils, CCD 269 mils, DCD 266.9 mils, Sunpower 5 mils.
MID 265 mils, CCD 410 mils, DCD 129 mils, Sunpower 204 mils
So, it is easy to see two beauties (CCD & Sunpower) and two beasts (MID and DCD). Well, assuming projection is correct, I rather have these two beauties than those two back in 2004 since I don't give a damn about SRAM.
2004 SOX was very volatile from 260 to 550. CY was even more volatile from $5 to $24. Right now, SOX is closer to 2004 high, yet CY price is no where nears 2004 high.
Now there are two questions:
1) Is CY a better company 2006 than 2004? Two beauties & two beasts. As I said, I like these two beauties better. So I tend to say ??yes??.
2) Hidden value of SPWR within CY now is about $10.7. How can the market be so indifferent to it? (I don??t think SPWR??s value was already planted back then since oil price 2004 wasn??t this high.)
Yes it is always safe to play by fact. But ??fact?? had never been the name of the game, ??anticipation?? is the name of game in this stock market.
There was a lot of ??if they do this?? either ??they already done this?? or ??management alludes that they will do this??. I come back later.
...Oh the old price to sales argument...LOL!
"We're losing a $1 on every item sold but we're making it up on volume!"....
Simple answer to yor quandary...
First let's see if CY can turn an actual profit for a quarter...
Then let's see if they can do it again...
and again...and again, and that totals four quarters in a row...
And let's see if all of that can add up to .65-.90 per share for a full year...
Then assign a P/E of 30 which is quite generous...
Then you will see your $20-27 stock....
Until then you can talk sales all you want but it's the bottom line that counts and that is the ONLY thing that will move this stock without CY selling, or spinning off, SPWR to their shareholders...
Until then...Buy CY at 11-12 then sell it at 16-17...IMHO of course!!
Good analysis, floppy. I like the idea of assigning P/S by division, but I suspect that you undervalue "harvesting". I'm not sure that TJ has the ability to let go of the past sufficiently to truely harvest DCD, but if he did it could be a cash cow for long enough for CCD to develop a few of its own.
As far as "Why CY traded $11 - $16 before SPWR IPO (then anticipated price was $5 to $13)? ".
One obvious answer to that is that the people who express their opinions with their money anticipated SPWR would trade in the mid 20s.
At this point, I suspect that the low valuation mainly reflects lack of confidence in 2006 earnings projections.
For harvesting, I assume that we all agree it only applying to NSE and PLD. PLD is on-going harvesting. Yes I might under-estimate the true power of harvesting NSE since it took close to half of R&D dollar at DCD. Also agree that T.J. needs lots of courage to fully acknowledge the failure on NSE, but he did on PSRAM.
I believe people took the closing price of 1st trading day by surprise. I don?t worry about the relative valuation on SPWR. But if all three (SPWR, ENER and ESLR) fall together, I do worry. At last, it is unproven industry in America. Once oil price fall back, alarm is off. We go back to our extravagant days. Who needs solar panel?
Powerlight did sign hundred millions dollars contract with SPWR and ESLR. California new solar program does have billions dollars price tag
Good luck next year.