MOT is at 52 week low good buy or not?

Answer 1

I am very impressed with the answer Random gave you. Give him 10 points. I just wish the analyzes produced by the professionals were so thorough.

Answer 2

I'm going to disagree with Random, although I agree with the follow-up answer that wished more people would write things like that.

I bought MOT yesterday for a trade - my stance is short-term positive, intermediate negative, and long-term neutral. As a quick trade, I anticipated MOT would bounce. This has happened so far today. Its simple market dynamics and probability, as people tend to overreact all at once, which sends the stock down too quickly.
I don't think the end of Motorola's problems are here though, so more weak holders will need to be shaken out of the stock. It should probably head down into the $16s before it finds a significant bottom, but I'm not really playing that, its just an estimate.
Long-term is where things become interesting; a DCF model suggests the company is about fairly valued now using the consensus estimates. I'm torn on the growth targets though, because part of me says the Motorola is the most innovative handset maker, and has the best potential to come out with a RAZR-type follow-up that will spur bottom-line growth, especially if the company handles pricing better. At the same time, cell phones are becoming increasingly commoditized, which should squeeze gross margins and hurt profits.

Whats the long-term solution? I think Nokia should buy Motorola in a $50 billion takeover. http://www.valuestockreports.com/032207.htm

Answer 3

NOT

And here is why. MOT is expected to grow its earnings at 10% annually over the next 5 years and has a current dividend yield of 1.1%. That is a total expected annual return to the shareholder of just 11.1% (average S&P 500 expectation is about 11.7% currently).

However, MOT is trading at roughly 16.8x expected earnings for the net 12 months. (S&P is currently about 15.8x). MOT has a PEG of 1.58 vs the S&P 500 of 1.35. Therefore in terms of expected returns, MOT is more expensive than the S&P 500.

And does their performance warrant this premium? I say NO! MOTs earnings have been shrinking y/y and is expected to continue to shrink for the rest of this year before turning around (Typical S&P 500 company has been growing earnings in the double digits). The only positive fundamentals for MOT is that they are cash flow positive and have managed a reletively robust 19% ROE.

So I think of MOT as an expensive "Show Me" stock. They need to demonstrate they can return to earnings growtth before I would ever consider them for investment. A 1.1% dividend yield is for a large cap growth company and they do not have the growth right now.

I would give them a fair value of $15.75 based on the above analysis (PEG ratio). But wouldn't consider it a BUY unless it provided a solid 20% discount to that ($12.60).

Answer 4

From a non-biztech perspective...

MOT is taking a beating mainly in the cellphone arena. Other parts of its business (radio infrastructure, public safety radio) are holding OK, but its exposure as a leading edge cellphone mfgr is killing them. They made loads of money early on w/ the RAZR, but it has become long in the tooth.

RAZRs have moved from a high end, high-margin item to a midrange, low-margin item. Cranking out more RAZRs to meet the need and prop up those margins has stymied efforts to roll out new phone models. It didn't help that execution problems prevented MOT from rolling out new phones like the KRAZR during the critical Christmas shopping season.

At the same time, competitors like Nokia and LG has moved in to steal market share, both at the economy and bleeding edge levels.

It's never good news when your CEO cancels his keynote address appearance at a major conference (CTIA Wireless), your CFO announces his retirement earlier than expected, you early announce 1QTR losses, and corporate raider Carl Icahn wants a piece of your action, not to mention the $11B in cash you're hoarding for a rainy day.

I'd hold on MOT, wouldn't buy, wait to see if they can execute better.