Motorola (MOT) shares are getting a boost Tuesday from Credit Suisse analyst Kulbinder Garcha, who raised his rating on the company to Outperform from Neutral. He raised his price target to $9.50, from $7; the stock closed Monday at $7.21.
Garcha sees the company posting profits of 4 cents a share this year and 37 cents in 2010, well ahead of the Street at a loss of 3 cents for this year and a profit of 27 cents for next year. He thinks the company’s mobile devices unit will approach break-even by the end of 2010, and that margins in the non-handset segments will expand in 2010.
Garcha says the quality of Motorola’s soon-to-be-announced Android-based handsets are getting “mixed reviews,” and he says they will get only modest carrier support initially. But he says the sheer number of new smart phones from Motorola - he expects 10 or more in 2010 - suggests his target for 12 million units in 2010 could be conservative. He says overall units will likely fall as the company cuts back on GSM phones and sub-$75 models, but that revenue should grow and gross margins are likely to expand.
The $9.50 price target, Garcha says, reflects his view that separation of the mobile devices unit is now again likely. To get to that price, he uses a sum-of-the-parts valuation scheme that includes an EV/sales multiple of 0.7x for devices, 0.3x for networks and an EV/EBITDA multiple of 7x for the home/enterprise business.
MOT Tuesday is up 20 cents, or 2.8%, to $7.38.