Uncertainties Keep ARM a Hold
ARM Holdings PLC (ARMH) is the leading IP provider of RISC microprocessors that are embedded in OEM (original equipment manufacturer) products. The company's top and bottom-line results were above consensus estimates.
Over the past year Royalty sales in both the PD and PIPD divisions have begun to drive growth and should be a positive long-term story. Those same royalty sales will also have the effect of ramping margins. Concerns such as the premium paid for Artisan, and the uncertainty regarding synergies have been eased. We continue to rate shares of ARMH a Hold until such time as the macroeconomic environment becomes clearer.
Currently, the stock is trading at a 13.1x P/E multiple of our projected 2009 EPADS. ARM's projected earnings growth is at the lower end of the peer group range. We believe that the stock will continue to trade around the current valuation metrics. We set a six-month target price of $7.00 based on 17.5X our 2009 EPADS estimate.
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