SiRF Staying Atop the Wave
SiRF Technology Holdings, Inc. (SIRF) is a fabless OEM of GPS semiconductor chipsets, semiconductor-based modules and associated software. SiRF reported December quarter results missed consensus expectations on the top- and bottom-line. Gross margin fell 200 basis points (bps) as the firm sold a higher mix of low margin System on Chip (SoC) products.
The current market valuation appears reasonable. Several end markets appear to be near-term catalysts that have the potential to significantly revise expectations upwards.
SiRF presently trades at a multiple of 9.2x our estimate of 2008 earnings (P/E) (pro-forma adjusted for Stock option comp). The announced design wins indicate a growing acceptance of the technology within the wireless handset manufacturing community.
The company reported an extremely strong quarter as records were set for revenue, operating profit, and shipment volume then followed that up with two weak quarters. Significant revenue ramping will probably not occur until the second half of 2008. Therefore, visibility will be limited through the current quarter.
We believe this company has solid long-term potential, and will outgrow the industry in the next several quarters. Consequently, we are maintaining our Buy recommendation on the shares of SiRF. We setting our price target to $12 with a corresponding 19x P/E.
Little Downside on Pfizer Shares
We believe Pfizer, Inc. (PFE) continues to face an uphill battle in growing its top-line given the company's sheer size and lack of a significant pipeline. While near-term earnings growth will come in the form of cost-cutting and share repurchases, the company lacks a catalyst to increase revenues once Lipitor loses patent exclusivity.
We expect the company to look to do a number of significant deals in the pharma and biotech industry in 2008 in order to build the franchise and invest for the future. While the stock has traded sideways over the past 12 months, we believe there's currently little downside price risk given the valuation.
The stock has likely bottomed out, and the market has largely digested Pfizer's woes. The company is a pharmaceutical behemoth with hordes of cash looking to find acquisitions that will jump-start its revenue in order to make up for the impending decline in Lipitor sales.
Don't expect to be impressed by Pfizer's internally generated revenue and earnings growth, because there's not enough horsepower in the company's current line-up of drugs to push a company this size at growth rates commensurate with its industry peers. While the company's cost-cutting and share buyback efforts will help earnings outpace sales growth, it's not a strategy management can hang its hat on, and therefore they have to find a way to expand the top-line.
That said, Pfizer's shares trade near the bottom of big pharma stocks and we feel, given management's skill in keeping the company growing, albeit slowly, there's little chance the shares will fall below where they currently trade. Although we've been disappointed by management's inability to find a significant transaction (or a significant number of smaller transactions) that will add materially to the top- and bottom-lines, we're hanging on to the hope that it's going to happen before Lipitor loses patent exclusivity and, given the stock's cheap price tag and juicy dividend yield (5.9%), believe the shares are worth holding. We rate the shares a Hold with a $22 price target.
ABM Industries Priced Fairly
ABM Industries, Inc. (ABM) reported first quarter EPS of $0.18, which was in-line with our expectations. There were several factors that positively impacted earnings, including higher-than-anticipated cost synergies related to the OneSource Services Inc. acquisition, higher Parking sales in the Southwest region, and new business wins in the Engineering segment.
For the full-year 2008, OneSource synergies should yield $0.14 of earnings (ex-integration costs), with the bulk realized from a lower cost structure. On a non-GAAP basis, management expects diluted earnings per share in the range of $1.20 to $1.35. This guidance excludes non-recurring expenses of approximately $60 million or $0.20 per diluted share associated with achieving synergies on OneSource as well as the major financial system upgrade, share service implementation and relocation of corporate headquarters.
We cut our FY08 EPS forecast to $1.27 from $1.30, primarily due to one additional workday in the second quarter. Investors should Hold shares of ABM in their portfolio. Currently, ABM trades at a P/E of 16.4x our downwardly revised FY08 EPS estimate.
