Trident Well Positioned in LCDs
Trident Microsystems, Inc. (TRID) has reported third quarter results that were in-line with our expectations. However, guidance for the fourth quarter was well below consensus due to the delay of a major contract.
Margins going forward are expected to decline as new SoC products are introduced. Earnings have been adjusted downwards again but revenue should improve on a sequential basis through fiscal 2009. However, we expect continued profits on a pro-forma basis.
Trident Microsystems is a leader in integrated circuits for digital television. While its products are used in all kinds of displays, LCD television is its most important growth market, as LCD televisions take share from plasma in the market for larger screens as well as traditional CRT television sets of all sizes. Although LCD TVs have gained traction, they are still expensive relative to other televisions. We believe the situation has begun to shift towards LCD TVs as manufacturers increase LCD TV production and prices fall. Although LCD is a superior technology to plasma, plasma still dominates the largest screens, where TRID is the strongest.
Trident is currently the clear leader in the high-end, but has lost ground to its Asian competitors in the low-end market. The companyâ?s first class customer base that includes Samsung Electronics Company Limited (the volume leader) and Sony Corporation (SNE) (the revenue leader) should be worth a premium to the group.
Based on 2009 FY earnings of $0.42 and a growth rate of 15% our price target is now $8, down from $12. We have reduced our estimate of the EPS growth rate from 20% to 15%. We are maintaining our Buy rating along with our revised price target of $8.
Limited Prospects for Liberty
Liberty Property Trust (LRY) reported 1Q08 funds from operations (FFO) of $0.80 per share, $0.01 above our estimates and consensus. Operations are holding up relatively well in the companyâ?s core portfolio although overall vacancies are increasing.
The company has an attractive yield, now over 7%, although the dividend is barely being covered with operating cash. We expect rental rates to remain flat through 2008, as the company has assets in office markets that have high vacancies.
Office and industrial markets are weakening throughout the US due to a faltering economy. Liberty has a large development pipeline that is only mildly pre-leased, and poses risk should the economy continue to soften in 2008. At 11.3x our 2008 estimates, Liberty is trading at a 31% discount to pure-play office REITs and a 12% discount to industrial peers.
While the current valuation is compelling, Liberty has marginal growth prospects in 2008. The company is forecasting little to no FFO growth in 2008 as rental rates increases should be flat or possibly negative.
