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Author: gunsightpass Big red star, 1000 posts Old School Fool Coverage Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 129  
Subject: Re: Valuation Date: 5/14/2004 4:57 PM
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lostpros,

Thanks for the analysis. I apologize for not responding sooner. Here are a couple of thoughts I had when I read your post.

1) I think that your sales growth number is a little high. Fireman provided guidance of sales growth in the mid single digits for the year.

( I think but am not positive that the extrapolation of 16% growth from a 4% quarter might also be a little off: The 4% growth number is based off of a comparison to last year's first quarter and the growth for each quarter is not additive. Growing 4% each quarter in comparison to last year's quarterwill only result in 4% total growth for the year.)

2) However, that being said Fireman did mention that earnings would grow about 15% so I think that you might be able to use a higher margin than you used.

Here are the results if some of the assumptions are changed:

Conservative Scenario:

Assumptions:
4% revenue growth for both 04 and 05
10% earnings growth for 04 and 4% (in line with revenue growth) for 05 (Basically the margin stabilizes at 4.8%)
60 million shares
P/E of 15

Results:

2004 Target Share price of 42.23
2005 Target share price of 44.96


Moderate Scenario:
7% revenue growth for 04 and 5% for 05
15% earnings growth for 04 and 5% (in line with revenue growth) for 05
60 million shares
P/E of 15

Results:

2004 Target Share price of 45.20
2005 Target share price of 47.45


Aggressive(Ok so maybe it isn't that aggressive) Scenario:
8% revenue growth for both 04 and 05
15% earnings growth for 04 and 8% (in line with revenue growth) for 05
60 million shares
P/E of 15

Results:

2004 Target Share price of 45.20
2005 Target share price of 48.81


So after all of that it comes out close to what you had although I may have been too conservative.

Based on today's closing price of 34.63 that would be a return of between 30%-41% over the next two years.

Any thoughts on the above are welcome.

Regards,
gunsightpass
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