Motorola ($MOT) announced terrible third-quarter results and forward looking guidance this week.  The communications company had a worse than expected financial result for the quarter (due to the cell phone business), delayed the spin-off of the cell phone business unit until after 2009 and cut yet more jobs.  The stock is trading close to a 52-week low.  How does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $MOT with interactive assumptions

Valuecruncher produces a valuation of US$7.04 for $MOT. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 36.2% above the current share price of US$5.17.

Assumptions

• Revenue: Reuters aggregates 25 analysts covering $MOT and these analysts have mean estimates of 2008 and 2009 revenues of US$32.3 billion and US$34.7 billion respectively. For our analysis we have used US$32.0 billion in 2008, US$33.0 billion in 2009 and US$33.5 billion in 2010.
• Profitability: We have used an EBITDA margin of 3.0% in 2008 rising to 8.0% in 2010. Reuters has $MOT‘s EBITD margin at 1.6% last year and 9.2% over the last five-years.  The current share price appears to imply that the market does not believe $MOT can achieve a return to historic profitability.
• Capital Expenditure: We have assumed capital expenditures of US$515 million in 2008 then US$600 million per annum moving forward.
• Discount Rate: 12.0%.
• Terminal Growth Rate: 0.0%.  Yes - we are assuming zero growth growing forward.

Our analysis incorporates the cash and debt the $MOT balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None