Good Valuation on National Semi
National Semiconductor Corporation (NSM) is an original equipment manufacturer of analog and mixed signal integrated circuits. May quarter results beat consensus expectations on the top and bottom-line. Forward guidance is for flat to 3% revenue growth in the first quarter.
New higher-margin products continue to grow in the mix, although lower sales levels could increase idle capacity and squeeze margins. Valuation remains attractive in our opinion and as a result we are reiterating our Buy rating on NSM shares.
Revenue for the fourth quarter was $462.0 million, up 1.9% sequentially and up 1.3% year-over-year. Gross margin of 65.9% in National's fourth quarter was up from the 64.3% gross margin achieved in the third quarter. The sequential improvement was driven by strong manufacturing performance and cost efficiencies as well as improved product mix of higher-value analog products. The firm reported net income of $83 million, or 34 cents per share. Thus, we set a six- month target price of $25.
Manpower Operations Strong
We maintain our Buy rating on Manpower Inc. (MAN), world leader in the employment services industry. The company's margins continue to expand and the share repurchase program continues. In addition, the Right Management unit appears to have turned the corner.
Moreover, in the first quarter, the management made three strategic acquisitions in order to grow and expand its recruitment process outsourcing (RPO) business and expand its global network, especially in emerging markets. Manpower continues to execute its key strategies of elevating and broadening client relationships while improving efficiency through speed and quality.
Therefore, due to strong operating performance and attractive valuation, the Buy rating is maintained. Strong growth in the outsourcing industry over the next three-to-five years is expected, as corporations continue to focus on core competencies and reduce growing costs associated with in-house support functions.
Manpower is currently trading at 13.1 times trailing 12 month earnings. Over the last five years, Manpower stock has traded in a P/E range of 11 to 30. However, the stock has traded at a P/E multiple above 24 only during periods of cyclical earnings decline. The company has generated strong revenue and earnings growth since 2006 through the first quarter of 2008. The target of $77.25 is based on a 15 P/E on trailing 12 month earnings
Valuation High for Green Mountain
Green Mountain Coffee Roasters, Inc. (GMCR) is a growth company in the premium coffee and tea industry. However, their stock is rated a Hold due to high valuation, rising input costs, and an unfavorable product mix shift.
The company competes against all sellers of specialty coffee, including Dunkin Donuts, New England Coffee, Peet's, Starbucks, Seattle's Best, and others. The competitors are larger companies with greater financial resources than Green Mountain Coffee and command greater and more prominent retailer shelf space.
Green Mountain Coffee Roasters Management is implementing a growth strategy based on a multi-channel geographic penetration business model. The use of multiple distribution channels increases the presence of the company's coffees. The company is expanding geographically and by adding new relationships, such as with McDonald's and Lowes.
Green Mountain Coffee Roasters is currently selling at 64.3 times trailing 12 month EPS, reflecting the company's higher-than-average growth profile.
