Seeking Alpha
Profile| Send Message|
( followers)  

What follows is a list of tech companies that are rated favorably on the Street. Of the three, Danaher (NYSE:DHR) is most preferred due to its solid track record and improving free cash flow yield. Based on my review of the fundamentals and DCF analysis, however, I find the least upside for Danaher, which has a strong bar to beat to drive value creation.

Cisco (NASDAQ:CSCO)

Cisco is rated a weak "buy" on the Street and trades at a respective 17.4x and 10.4x past and forward earnings with a dividend yield of 1.2%. It has a beta of 1.2 and a free cash flow yield of 8.4%.

Consensus estimates for Cisco's EPS forecast that it will grow by 9.3% to $1.77 in 2012, and then by 9.6% and 10.3% in the following two years. Modeling a CAGR of 9.7% for EPS over the next three years and then discounting backward by a WACC of 9% yields a fair value figure of $27.29, implying 36.5% upside. The company is partnering with EMC and NetApp to create a unified data center that will mitigate risk. In addition, if routing and Ethernet switching is of any indication, it is gaining market share.

Danaher

Danaher is rated a "strong buy" on the Street and trades at a respective 18.9x and 14.2x past and forward earnings with a dividend yield of 0.2%. It has a beta of 1 and a free cash flow yield of 6.2%.

Consensus estimates for Danaher's EPS forecast that it will grow by 16.6% to $3.30 in 2012, and then by 11.5% and 12.8% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $3.63, the rough intrinsic value of the stock is $54.45, implying that the company is roughly at fair value.

Eaton (NYSE:ETN)

Eaton is rated a "buy" on the Street and trades at a respective 13.2x and 10.3x past and forward earnings with a dividend yield of 2.9%. It has a beta of 1.5.

Consensus estimates for Eaton's EPS forecast that it will grow by 11.1% to $4.40 in 2012, and then by 15% and 11.3% in the following two years. Of the 14 revisions to estimates, all have gone down for a net change of -2%. Assuming a multiple of 14x and a conservative 2013 EPS of $5.02, the rough intrinsic value of the stock is $70.28, implying 35.7% upside. The company had impressive third-quarter momentum with the top-line gaining 15%. Moreover, it is attractive how one-fourth of business came from emerging markets, which will help hedge against slow domestic economic growth.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Despite Street Opinion, Danaher Will Underperform Cisco, Eaton