3 Tech Firms Well Positioned And Safe

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Includes: GLW, GME, XLNX
by: Takeover Analyst

What follows is a list of tech companies that have are relatively safe given room for multiples expansion, a low beta for the industry, positive secular trends, or a combination of the three. They cover different industries: tech equipment, semiconductors, and specialty video game retailing. Xilinx (NASDAQ:XLNX) is the least preferred on the Street, but it still has meaningful appreciation potential in emerging markets.

Corning (NYSE:GLW)

Corning is rated a "buy" on the Street and trades at a respective 7.7x and 9.1x past and forward earnings with a dividend yield of 2.2%. It has a beta of 1.4.

Consensus estimates for Corning's EPS forecast that it will decline by 19.3% to $1.42 in 2012 and then grow by 5.6% and 2% in the following two years. Assuming a multiple of 12.5x and a conservative 2013 EPS of $1.45, the rough intrinsic value of the stock is $18.13, implying 32.6% upside. Of the 21 revisions to estimates, 19 have gone down for a net change of -16.2%. The company has strong fundamentals that are regrettably being masked by concerns over near-term pricing trends. Financially, the company was strong in 2011 with records in sales, gross margins, and operating income. 2011 also marked the eight consecutive year that the company generated positive free cash flow. Fortunately, management in cutting back on capex while simultaneously more generous in returning free cash flow to shareholders.

Xilinx

Xilinx is rated a "hold" on the Street and trades at a respective 17.4x and 18x past and forward earnings with a dividend yield of 2.1%. It has a beta of 1.

Consensus estimates for Xilinx's EPS forecast that it will decline by 20.1% to $1.91 in 2012 and then grow by 5.8% and 16.8% in the following two years. Assuming a multiple of 18.5x and a conservative 2013 EPS of $1.98, the rough intrinsic value of the stock is $36.63. The firm is well positioned to benefit from 3G and 4G development in India as the largest semiconductor firm of its kind. What's more, the company is well insulated by high switching costs and R&D, which will help sustain the streams of free cash flow. Firms are expected to substitute towards PLDs as the less flexible ASICs lose their relative price advantage.

GameStop (NYSE:GME)

Game Stop is rated a "buy" on the Street and trades at a respective 8.4x and 7.3x past and forward earnings with a dividend yield of 2.6%. It has a beta of 1.

Consensus estimates for GameStop's EPS forecast that it will grow by 7.5% to $2.87 in 2012 and then by 10.1% and 7.3% in the following two years. Assuming that the multiple holds steady and 2013 EPS turns out to be $3.13, the firm would appreciate by 14.6%. It has strong visibility due to a leading market position, which will be further supported by strong store growth. Its international expansion also hedges against domestic uncertainty.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GLW over the next 72 hours.