Investing

Break-Up Value: Motorola, $26.70

Wall St. may have lost track of the fact that Motorola (MOT) is really three large business under one roof. Of the $42 million in revenue that the company is likely to have in 2006, about $28 billion will come from the handset business. The company’s telecom network infrastructure business is another $11 billion. Its set-top box division, which competes with Cisco’s (CSCO) Scientific Atlanta group, is the third operating business and should bring in about $3 billion.

The handset business has had an operating margin of about 12%. Based on the company’s recent bad news about price pressure in this part of the company, that figure could clearly drop. The infrastructure business has a margin of about 14%. The set-top box business has a 3% margin.

Motorola has debt that roughly equals cash, so there is very little discount needed from its $43.7 billion market cap ($18 a share).

Nokia, the largest handset company in the world, trades at about 1.5x revenue. Motorola is at about 1x. Nokia is putting its network business together with Siemens, so that is probably priced into its stock. At 1.5x Motorola’s revenue, the handset business would have a value of $42 billion, close the current market value for the whole company.

The infrastructure business has a few large competitors. Alcatel-Lucent (ALU) and Nortel (NT) each have a fair deal of debt for their market caps. Each company trades for about 1x sales.

The other companies that are dominant in the segment are the Nokia/Siemens (NOK)(SI) upcoming joint venture and Ericsson  (ERIC) which is buying Redback (RBAK). Ericsson trades for 2.6x sales. An analyst could argue that Cisco (CSCO) and Juniper (JNPR) are also in closely related businesses and each trades for over 5x sales.

Leaving the companies with the high premium multiples out of the valuation, Motorola’s infrastructure business has comparables in Nortel, Alcatel-Lucent, and Ericsson that range from 1.1x sales in value to 2.6x. At a 1.8x multiple, Motorola infrastructure business would be worth $19.8 billion.

Leaving the set-top box business at Motorola’s own 1x valuation would give that segment a $3 billion valuation. That would bring the valuation of the entire company to $64.8 billion or $26.70 per share, about 50% higher than the stock is now.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

Credit Card Companies Are Doing Something Nuts

Credit card companies are at war. The biggest issuers are handing out free rewards and benefits to win the best customers.

It’s possible to find cards paying unlimited 1.5%, 2%, and even more today. That’s free money for qualified borrowers, and the type of thing that would be crazy to pass up. Those rewards can add up to thousands of dollars every year in free money, and include other benefits as well.

We’ve assembled some of the best credit cards for users today.  Don’t miss these offers because they won’t be this good forever.

Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.