BRCM's prospects for growth continue to outpace its peers, given its leading ability to integrate communications and processing in both current and emerging markets.
Nevertheless, based on our pro forma EPS estimate, we believe the stock is richly valued, despite the company's leading position in wireless, broadband and networking. Moreover, we are also concerned with the cyclicality inherent in the semiconductor market and the potential difficulty to penetrate any particular market or a combination of markets. Also, the potential always exists for current customers to switch to an in-house chip design, or to undertake such capabilities.
Accordingly, we maintain our Hold rating and our target price of $24. Our price target is based on roughly 16.4x our fiscal 2008 pro-forma EPS estimate of $1.46, which excludes the cost of stock-based compensation.
Mylan Looks Better Long-Term
Mylan, Inc. (MYL) is engaged in the development, manufacture, marketing, licensing and distribution of generic, branded and branded generic pharmaceutical products, as well as active pharmaceutical ingredients (APIs). With the acquisition of Merck Generics and Matrix Labs, Mylan is now the third largest generic company in the world.
While we expect the Merck Generics acquisition to contribute to long-term growth, near-term execution risks remain. Mylan recently announced certain strategic initiatives which should help drive long-term growth. But management also stated that they expect 2008-2010 EPS to be negatively impacted by a slower-than-expected new product launch.
The company lowered EPS guidance for 2008-2010 based on higher expenses, reduced opportunities from patent challenges and the potential sale of its specialty business. We maintain a Hold rating with a $13 price target.
Not So Rosy Over at PALM
Although Palm (PALM) has released several new products and has a major platform redevelopment in the works, we believe that the company currently lags competitors with its dated product offering. The company faces increased competition with Apple's (AAPL) iPhone in the consumer market and Research in Motion (RIMM) in the enterprise market.
Palm has partnered with Microsoft (MSFT) and brought in a former Apple executive to help turn its business around. However, we don't expect to see any improvement soon, and we recommend investors avoid the stock. We therefore reiterate our Sell rating and six-month price target of $4.00.
We are also concerned that Motorola (MOT) will more aggressively enter the market for corporate email solutions given its acquisition of Palm's partner for corporate email, Good Technologies. Although Palm's new product releases had been smooth, we don't expect a major improvement in its flagship Treo for close to another year.
Moreover, Palm's recently launched Centro has taken a toll on its margins. Although the company is difficult to value given its lack of positive earnings and depressed P/S [price-to-sales] ratio, which is deserved given the company's outlook, we believe the stock will continue to trade down.
