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Trimble at Fair Value

An update has just come out on Trimble Navigation, Ltd. (TRMB), in which senior manufacturing sector analyst Ken Nagy, CFA is restating his Hold rating on the company.  We excerpted the following details:

'Trimble is an original equipment manufacturer (OEM) of GPS-based products and control systems. September quarter revenue was generally in-line with the consensus, although the EPS exceeded. All the segments declined sequentially, although year-over-year growth was strong. E&C [Engineering and Construction] had a bad quarter all around, with a negative impact from the crisis in the sub-prime market.

'The Trimble DSD offering remains a drag on the Advanced Devices segment, and is expected to remain so for awhile. Forward revenue guidance is for a 0-1% sequential decline in Q4. Revenue is expected to be up 23% in 2007 over 2006 levels. We believe the share price reflects the current value.

'The new Advanced Devices unit is also expected to turn the corner in 2007. The strong end markets, success with several new products and improving margins indicate that TRMB is positioned for significant growth in 2007. We feel very positive about this stock, but believe the good news is factored into the price. We also analyzed the company on the basis of the DuPont model.

'The TTM ROE [trailing 12-month return on equity] was 37.5% at quarter-end, with increasing net margins, decreasing asset turnover and generally increasing equity multiplier. Management paid down some debt in the last quarter, which resulted in a lower equity multiplier. We note that both receivables and inventories continue to increase quarter-to-quarter, indicating larger working capital expenses. We are maintaining our Hold rating on TRMB shares, since the shares continue to trade at an all-time high. We are reiterating our $35 price target, which corresponds to 28x P/E (2007 earnings).'

Debt at Donnelley May Have Risk

The following details explain why Zacks media analyst Sean P. Smith remains neutral on R.H. Donnelley Corporation (RHD), the advertisement company:

'The company continues to generate substantial cash flow, although we note that debt currently comprises more than 80% of total enterprise value. We view the company's plans to initiate a quarterly cash dividend in 2008 positively. However, given the current outlook for flat ad sales in 2008, along with challenging economic conditions and a tight credit market, we would like to maintain a wait-and-watch approach.

'Given ongoing concerns about an economic slowdown, we remain cautious on shares of RHD. The shares currently trade at approximately 29.3x and 21.5x our 2007 and 2008 EPS estimates, respectively. In light of the number and magnitude of acquisitions in the company's recent past, we believe that valuation based on an EBITDA multiple is more appropriate in this situation.

'The shares presently trade at approximately 8.8x and 8.5x our projection for full-year 2007 and 2008 EBITDA estimates, respectively. Our price target of $30 per share equates to approximately 8.2x our 2008 EBITDA estimate.