I previously posted an estimate of SWKS future adj EPS under 2 scenarios.
1) Decrease TTM EPS Growth down from about 75% by about 5% each quarter after 6/15. This extends through the quarter ending 9/16 and gives a future TTM adj EPS value of $8.20 (to be announced in early Nov 2016). This would give the shares a value of $180.40 if the P/E stays at 22.
2) Maintain the TTM EPS Growth at about 75% through the quarter ending 9/16. This gives a future TTM adj EPS value of $10.15 (to be announced in early Nov 2016). This would give the shares a value of $1223.30 if the P/E stays at 22.
Now, Denny suggested that I try to model things on revenue rather than adj EPS. So I've done that in the table below. The first 5 quarters listed are actuals, the 6th quarter (6/15) is based on guidance (although my model gives an adj EPS of $1.40 instead of the guidance of $1.28), and the last 5 are forecasted based on the following assumptions:
A. For the last 5 quarters, I grew revenue by the average of the revenue growth of the preceding 5 quarters. This is 47.9%.
B. I increased gross margin by 1% per quarter up from the guided 48% for next quarter.
C. I increased operational expenses by $3M per quarter.
D. I assumed that 88.6% of the Operating Income drops to the Adjusted Net Income. This was the lowest percentage of the preceding 5 quarters.
E. I assume dilution of 1 million shares per quarter.
```
<b>
14-Mar 14-Jun 14-Sep 14-Dec 15-Mar 15-Jun 15-Sep 15-Dec 16-Mar 16-Jun 16-Sep
Revenue Growth 0.479 0.479 0.479 0.479 0.479
Net Revenue 481 587 718.2 805.5 762.1 800 1062.2 1191.3 1127.1 1183.2 1571.0
Gss Pft (adj) 215.2 266.6 329.6 376.4 356 416 541.7 595.7 552.3 567.9 738.4
Gross Margin 44.7% 45.4% 45.9% 46.7% 46.7% 0.48 0.49 0.5 0.51 0.52 0.53
OpEx (adj) 84.8 87.5 93.9 94.4 97.1 100 103 106 109 112 115
Op Inc (adj) 130.4 179.1 235.7 282 258.9 316 438.7 489.7 443.3 455.9 623.4
OpEx (% GssPft) 39.4% 32.8% 28.5% 25.1% 27.3% 24.0% 19.0% 17.8% 19.7% 19.7% 15.6%
Adj Net Income 118.6 160.8 216.1 244.8 224.6 274.3 380.8 425.0 384.8 395.8 541.1
% of Op Inc 91.0% 89.8% 91.7% 86.8% 86.8% 86.8% 86.8% 86.8% 86.8% 86.8% 86.8%
Adj EPS 0.62 0.83 1.12 1.26 1.15 1.40 1.93 2.14 1.93 1.98 2.69
Shares (mil) 191.3 193.7 192.9 194.3 195.3 196.3 197.3 198.3 199.3 200.3 201.3
</b>
```
As you will notice, operating leverage is dropping as the business scales. The percentage of OpEx divided by Gross Profit drops to as low as 15.6%.
TTM Adj EPS ends at $8.74. This is in between the other 2 scenarios that were presented at the beginning of this post. The stock price in early Nov 2016 at a P/E of 22 would be $192.28.
Chris
6 Likes
Due to a formatting error, the adj EPS share numbers are shifted to the left by 1 quarter.
After reading Ray's QCOM post and the write-up by the Morningstar analyst, I decided to pug in 30% revenue growth into the SWKS model that I created yesterday. This is just a what-if scenario if SWKS achieves 30% y/o growth as the Morningstar analyst predicts.
```
14-Mar 14-Jun 14-Sep 14-Dec 15-Mar 15-Jun 15-Sep 15-Dec 16-Mar 16-Jun 16-Sep
Revenue Growth 0.3 0.3 0.3 0.3 0.3
Net Revenue 481 587 718.2 805.5 762.1 800 933.7 1047.2 990.7 1040.0 1213.8
Gross Profit 215.2 266.6 329.6 376.4 356 416 476.2 523.6 485.5 499.2 570.5
Gross Margin 44.7% 45.4% 45.9% 46.7% 46.7% 0.48 0.49 0.5 0.51 0.52 0.53
OpEx (adj) 84.8 87.5 93.9 94.4 97.1 100 103 106 109 112 115
Op Inc (adj) 130.4 179.1 235.7 282 258.9 316 373.2 417.6 376.5 387.2 455.5
OpEx (% GP) 39.4% 32.8% 28.5% 25.1% 27.3% 24.0% 21.6% 20.2% 22.5% 22.4% 20.2%
Adj Net Income 118.6 160.8 216.1 244.8 224.6 274.3 323.9 362.5 326.8 336.1 395.3
% of Op Inc 91.0% 89.8% 91.7% 86.8% 86.8% 86.8% 86.8% 86.8% 86.8% 86.8% 86.8%
Adj EPS 0.62 0.83 1.12 1.26 1.15 1.40 1.64 1.83 1.64 1.68 1.96
Shares (mil) 191.3 193.7 192.9 194.3 195.3 196.3 197.3 198.3 199.3 200.3 201.3
```
Under this scenario, TTM adj EPS in the 9/16 quarter is $7.11/share giving the company a value of $156.42 about 18 months from now.
Chris
2 Likes
TTM adj EPS in the 9/16 quarter is $7.11/share giving the company a value of $156.42 about 18 months from now
I meant assuming a P/E of 22.