While some aspects of the plan provided concrete details, others appeared too vague to accurately assess their ability to address the problems the company faces.At the current price of $13.59, ANGO trades at 2.1x estimated fiscal 2008 revenues of $165 million, a significant discount to the 4.0x 2008 industry average, and a 51% discount to the average of comparables. On our current calendar 2008 EPS estimate of $0.58, the stock trades at a 1.56x P/E/G, at a premium to the average of its comparables at 1.1.
The management mentions nothing about using cash to repurchase stock. Either they are confident they can find better uses for the cash, or, it tells us about the size of the problems the stock faces. The target price moves to $15.50, reflecting the higher execution risk associated with this name.
Pricing Pressure for Siliconware
Siliconware Precision Industries Co., Ltd. (SPIL) reported a weaker first-quarter of 2008 than expected, with revenues and earnings below our estimates. The company has reduced its Capex [capital expenditure] budget for 2008 and is experiencing severe pricing pressure in its memory testing business.
There is an indication of further erosion in gross and net operating margins in 2008 due to reduction in average selling prices in all three segments computing, communication and consumer. We were shocked by the revenue weakness due to its dependence on its top customers, and the uncertainty in global financial markets has left little upside to the stock, in our opinion, at this time. It is for this reason that we are maintaining our Hold rating on shares.
We are encouraged by the company's strong cost management and expansion efforts, which have maintained utilization rates in the high 95% range, although they are projected to come down in 2008. We believe Siliconware will benefit from the continued trend towards outsourcing by integrated device manufacturers (IDMs). We are particularly optimistic about the prospects of the high-margin liquid crystal display (LCD) driver integrated circuit (IC) packaging business.
Shares of Siliconware are currently trading at 10.5x our 2008 earnings estimate of $0.67 and 8.5x our new 2009 estimate of $0.82. We have fixed our price target at $7.30 based on the company selling between 10.8x 10.9x our new 2008 EPADR estimate of $0.67, as 2008 has begun and we will have more visibility after 2Q08.
Risk of Lower Akamai Growth
Akamai Technologies, Inc. (AKAM) continues to post growth, as demand for bandwidth heavy applications and media grow, which should continue for the foreseeable future. Moreover, the company has a strong patent portfolio and has essentially eliminated a chief competitor through infringement litigation.
However, with broadband access well penetrated into the online user base, traffic growth has begun to decelerate. Moreover,
AT&T's (T) announcement that it would spend $70 million to bolster content delivery indicates that the market is becoming more competitive. We therefore maintain a Hold recommendation on the shares of AKAM.
Akamai is currently trading at 26.8x our 2008 EPS estimates and 7.3x our 2008 revenue estimate. Although the valuation has fallen to the low-end of historic levels, we would not yet be buyers of the stock given what we believe is risk of a decelerating growth rate.
The company has guided for 28% revenue growth at the mid-point in 2008, which although an impressive rate, it is unlikely to be enough to raise the valuation significantly. We maintain our $37.50 price target, representing a P/E multiple of 28.4x and a P/S multiple of 7.7x 2008 estimates, which we believe is a reasonable valuation for a high growth stock and represents a P/E to growth (PEG) ratio of approximately 1.
