Kyocera Corporation (NYSE: KYO) Price: $69.75 Market Capitalization: $13.2B EV: $8.2B (Adj EV*: $3.6B) Price/book: 0.94x 2008e Revenue: $12.9B Net Income: $1.1B Free cash flow: $1.2BDividend/share: $1.13 Yield: 1.6% Payout Ratio: 25%P/E (ttm): 15.0x EV/FCF: 8.2x Intrinsic Value: $95-115* Minus cash and long term equity investmentsThesisKyocera makes ceramic and electronic components for products we use every day such as computer chips, flat-screen TVs, cameras, cell phones, and printers. It is a solid, profitable business and ridiculously cheap. Company DescriptionKyocera (formerly Kyoto Ceramic Kabushiki Kaisha) makes 1) high tech equipment including cell phones, printers and fax machines/scanners and 2) components for semiconductor & automotive industries, cutting tools, solar cells, medical implants, and synthetic emeralds, alexandrites, and rubies. 40% of sales were generated from Japan in FY08. Why Buy?• Incredible price: company trades for 8x cash flow; 74% of market cap is cash & investments ($10.0B) • Earnings are understated by 10% due to more conservative depreciation method started last fiscal year (‘08)• Industry leader in ceramic components • Pioneer of solar panel technology and cautious expansion – this market is growing at 50% Risks• Slowdown in global and Japanese economy • Second tier global player in printers, peripherals, and phones • Solar overcapacity and price declines almost certain • Declining prices (~15%) in electronics components business • Japanese companies are typically hesitant to realize balance sheet value Value Kyocera will struggle in a weakening global economy. It has suffered extended (3 year) downturns in the past where the stock falls 50% peak to trough. So far we are down 30%. However, the valuation today is much more compelling, as the company has a much bigger cash and investment position than in the past. Assuming a 30% decline in free cash flow and a 10x multiple, Kyocera is worth $95 per share. However, the value could be higher if 1) solar continues to perform, 2) rest of business holds up well, or 3) investors discover the low valuation and expand the multiple.
Market Capitalization: $13.2B EV: $8.2B (Adj EV*: $3.6B) Price/book: 0.94x 2008e Revenue: $12.9B Net Income: $1.1B Free cash flow: $1.2BDividend/share: $1.13 Yield: 1.6% Payout Ratio: 25%P/E (ttm): 15.0x EV/FCF: 8.2x Intrinsic Value: $95-115* Minus cash and long term equity investments
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