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Analyst recommendations are generally presented on a scale from Strong Buy to Strong Sell. It is possible, however, to look at these recommendations as if they were made on a numeric scale of 1 (Strong Buy) to 5 (Strong Sell). The consensus recommendation would then be the average of all of the analyst recommendations for a particular stock. Since lower numbers represent more positive sentiment, you can screen stocks looking for those with a low number reflecting the consensus analyst sentiment. Using the Screener.co Equity Research Platform, you can also look at the average analyst target price as well as both historical operating metrics and forward looking estimates.

For the purpose of this analysis, we will look for companies with a consensus recommendation of less than 2 (Buy), meaning that at least one analyst recommended the stock as a Strong Buy and the average recommendation is at least better than a Buy. We will also require that the average target price be at least 20% higher than the current price. In addition, to limit the scope to companies trading at reasonable multiples, we will require that the EV/EBITDA ratio (a valuation metric) be less than 10. As a housecleaning measure, we will eliminate all stocks with TTM revenue of less than $250M, Over the Counter companies, and Chinese companies. The full set of conditions is below:

Field
op
Criteria
Consensus recommendation
<
2
Target price
>
Price-closing or last bid * 1.2
Current EV/EBITDA
<=
10
Country Located In
!=
"China"
Exchange Traded On
!=
"Over The Counter"
Sector
=
"Technology"
Total Revenue(NYSE:I) + Total Revenue(I-1) + Total Revenue(I-2) + Total Revenue(I-3)
>
250000000


As of 9/8/2011, this returns 69 results. Looking over the list, there are a number of interesting companies:

Activision Blizzard (NASDAQ:ATVI)
Marvell Technology Group (NASDAQ:MRVL)
Microsoft (NASDAQ:MSFT)
Oracle (NYSE:ORCL)
SanDisk (NASDAQ:SNDK)
Arrow Electronics (NYSE:ARW)
Avnet Electronics (NYSE:AVT)
SYNNEX (NYSE:SNX)

Activision Blizzard (ATVI) is a computer gaming company and has a market capitalization of $13.5 billion and an EV/EBITDA ratio of 8.8x. The consensus recommendation is 1.5 and the target price is 124.6% of the current price.

Marvell Technology Group (MRVL) is a semiconductor company with a market capitalization of $8.2 billion and an EV/EBITDA ratio of 5.9x. The consensus recommendation is 1.9 and the target price is 140.8% of the current price.

Microsoft (MSFT) is a computer software company with a market capitalization of $217.8 billion and an EV/EBITDA ratio of 5.9x. The consensus recommendation is 1.9 and the target price is 123.2% of the current price. I am long on MSFT, and have been since it bottomed out in early 2009.

Oracle (ORCL) is a computer software company with a market capitalization of $139.8 billion and an EV/EBITDA ratio of 8.6x. The consensus recommendation is 1.8 and the target price is 131.3% of the current price.

SanDisk (SNDK) is a computer data storage company (flash memory manufacturer) with a market capitalization of $9.0 billion and an EV/EBITDA ratio of 4.6x. The consensus recommendation is 1.8 and the target price is 151.0% of the current price.

Arrow Electronics (ARW) and Avnet Electronics (AVT) are both contract electronics manufacturing companies. Arrow has a market capitalization of $3.5 billion and an EV/EBITDA ratio of 5.2x. The consensus recommendation is 1.6 and the target price is 144.7% of the current price. In contract, Avnet has a market capitalization of $4.0 billion and an EV/EBITDA ratio of 4.7x. Its consensus recommendation is 1.5 and the target price is 132.7% of the current price.

SYNNEX (SNX) is a distribution and business process outsourcing company with a market capitalization of $943.6 million and an EV/EBITDA ratio of 5.2x. The consensus recommendation is 1.8 and the target price is 138.1% of the current price.

Personally, I do not rely on analyst recommendations but this filter has yielded some interesting results. With an EV/EBITDA ratio of just 4.6x, SanDisk looks somewhat interesting, and I am already long on Microsoft. However, Oracle has an EV/EBITDA of 8.6x relative to Microsoft's 5.9x, is dependent on an enterprise sales model, and sells database software into an evolving and highly competitive market where traditional foes like Microsoft, open source alternatives, and big data NoSQL upstarts are threatening their dominance. It just seems like a premium valuation on a company that faces important strategic threats.

Activision Blizzard is also trading at a premium EV/EBITDA ratio of 8.8x, but relative to the speculative valuations being attributed to social gaming companies like Zynga, that offer less revenue visibility than Blizzard's subscription model, I can understand why it is trading at a premium (though it is still too rich a valuation for my taste). In fact, some articles have claimed Zynga will go public at a ~$20B valuation, which is a higher market cap that Activision Blizzard, despite Activision having more than 7x as much revenue in 2010 and being substantially more profitable.

Disclosure: I am long MSFT.

Source: 8 Reasonably Valued Technology Companies That Analysts Like