UTStarcom, Inc. (UTSI)
SSG and PERT A (12-19-2004) | Google Stocks | Company Website
Stock Selection Guide Updated. The SSG for UTStarcom has been revised. UTSI is a higher risk company than others in our portfolio but has the potential for significant return if it resumes even part of its historical growth rates. A recent webcast presented at the Lehman Brothers T4 conference on December 10 provides a good current overview.
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Capital One Financial
Stock Selection Guide Updated. The SSG for Capital One Financial has been revised. Capital One Financial remains a quality company. The stock has moved just out of the “buy” range into the “hold” range.
There is a replay of an informative presentation by the Capital One Financial CEO at the Merrill Lynch Banking & Financial Services Conference on November 15 available at the company website. If you listen to the presentation, be sure to view the presentation slides. The presentation explains the strategic direction of Capital One Financial.
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Affiliated Computer Svc
Affiliated Computer Services (ACS)
SSG and PERT A (11-24-2004) | Google “Stocks: ACS” | Company Website
The Affiliated Computer Services stock selection guide has been updated. Here are the highlights.
Quality. Section 1 of the SSG (the graph on page one), shows consistent growth. For ACS, the correlation coefficient (r^2) is 1.0 for earnings and .95 for sales. This is quite good. Looking at Section 2 of the SSG, the pre-tax profit margin is trending up and return on equity is even. These are both indicators of consistency and excellent management. Overall, ACS is a high quality company.
Growth. Historically, ACS has had very strong growth. It is a little tricky to estimate future ACS growth since recent financial statement reflect the divestiture of most of ACS’ government business and the acquisition of some new businesses. The management discussion in the current 10Q discusses internal revenue growth (measured as total revenue growth less acquired revenue from acquisitions and revenues from divested operations). After excluding the impact of the revenues related to the 2004 divestitures, revenues in the current quarter increased 22%. Internal revenue growth accounted for 11% of the 22%. The above SSG uses a revenue growth of 15.8% based on Value Line.
Valuation. Using the “preferred proceed” in the SSG, the projected 5-yr EPS is $5.88. (See SSG for pre-tax margin, tax rate and shares outstanding.)
The projected average return over five years is 14.5%. Here is how it is calculated:
- Projected 5-yr Price = Projected P/E * Projected EPS Projected 5-yr Price = 19.9 * 5.88 = $117.02Projected Avg Return = [(Future Price / Current Price)^(1/5) + Avg Div Yld – 1] * 100
Projected Avg Return = [(117.01 / 59.53) ^ (1/5) – 1] * 100 = 14.5%
Note: The Toolkit software does this automatically. Reviewing the calculations makes it easier to understand the results.
Summary. ACS (currently $59.53) is in the “buy” range. The upside-downside ratio is 3.9 to 1. The relative value is 100.
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Marsh & McLennan Cos.
Initial Position in Marsh & McLennan. On November 10, Moosepond Investors bought took an initial position in MMC. The stock selection guide assumes a 9% earnings growth rate and an average high PE of 18. MMC has been in the news recently. The current investigation by the New York State Attorney General into commission practices by the insurance industry and an allegation of bid rigging has caused the MMC’s stock price to drop from $46 per share to its current levels in the high $20s. This presents an excellent buying opportunity, but not one without risk. The October 26 press releases and webcasts on the MMC website give some assurance that management is aggressively working to resolve the issues raised by current investigation. By all traditional measures, MMC remains a high quality company. It remains to be seen whether the investigation will result in a loss of revenue to MMC be customer defection or a reduction in earnings as a result of changed commission practices.
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