Netgear, Inc April/03/2012 Presentors: Ryo-Seob(Joseph) Kim Jionghan(JD) Dai Han(Henry) Yang
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Transcript of Netgear, Inc April/03/2012 Presentors: Ryo-Seob(Joseph) Kim Jionghan(JD) Dai Han(Henry) Yang
Netgear, Inc
April/03/2012
Presentors: Ryo-Seob(Joseph) Kim
Jionghan(JD) Dai
Han(Henry) Yang
Pattharaporn (Pauline) Lertphaiboonsiri
Yen-Hua(Gina) Huang
Overview
Netgear, INC.incorporated in 1996, engages in the design, development, marketing, and
sale of networking products. It offers its products to connect users as well as commercial businesses, and also provides home networking service to customers.
Key FiguresM. Cap 1.44 Bil ROE(2011) 16.04%
Shares Outstanding
38 Mil Net Debt -354 Mil
Current Price 38.20 3yr Avg. Growth in Sales 18%
Trailing PS 1.23 3yr Avg. OP Margin 8%
Trailing PE 15.85 3yr Avg. Growth in OI 62%
PEG Ratio 0.77 3yr Avg. NP Margin 5%
Trailing PB 2.26 3yr Avg. Growth in NI 159%
Netgear’s Market Performance
Source: Yahoo Financehttp://finance.yahoo.com/q/bc?s=NTGR&t=5y&l=on&z=l&q=l&c=
EPS(11)=$2.41EPS(07
)=$1.28
Retail – Home networking products, including Routers, Network Adapters, Range Extenders
Commercial – Business networking solutions, including Network Security, Switches, Network Storage
Service Provider – Made-to-Order and retail proven, whole home networking solutions for residential and business customers.
Business Segments
Source: Netgear homepage http://www.netgear.com
Business Segments
Products
Source: 10-K (2011), revised by Joseph
Geographic Segments
Source: 10-K (2011), revised by Joseph
Important Macro Index
Main customers Companies Individuals
Companies defer unnecessary investment during recession GDP
Individuals with lower income cut expenses in upgrading network Personal income
Important Macro Index
GDP
Personal income
Foreign exchange rateSource: Capital IQ
Sector: technology Industry: networking equipment
manufacturing
Industry
Source: http://clients.ibisworld.com/industryus/default.aspx?indid=745
Revenue Drivers
Key Success Factor
- Decrease in cash 2010 : from ST investment (net Increase 70 M) from 74M to 144M ) and the 2 M cash acquisition of IP and other assets of Leaf Networks, LLC (“Leaf”), a developer of virtual networking software, to boot networking technology research and development initiatives.
- Increase in Cash 2011; from higher net income by 79% and sale of ST investment purchased in 2010.
- 37 million cash acquired for the Customer Networking Solutions division of Westell Technologies, Inc. (“Westell”)
Financial Analysis
Financial ratio
Asset Turnover 2007 2008 2009 2010 2011
Total Asset Turnover 1.32 1.27 1.08 1.16 1.22
Fixed Asset Turnover 64.95 36.63 40.65 51.54 74.35
Accounts Receivable Turnover 4.61 5.38 4.22 3.98 4.52
Day Sales outstanding 79.12 67.90 86.57 91.74 80.76
Inventory Turnover 8.77 6.62 7.58 7.08 7.21
Inventory Days 41.64 55.11 48.16 51.55 50.60
AP Turnover 8.77 8.36 6.95 6.76 6.92
AP Days 41.63 43.65 52.51 53.98 52.75
Short Term Liquidity
Current Ratio 2.67 2.51 2.44 2.39 2.51
Quick Ratio 1.43 1.42 1.30 1.39 1.38
2007 2008 2009 2010 2011Net revenue Growth 2% -8% 31% 31%
% Gross Margin 33% 32% 30% 33% 31%% Net margin 6% 2% 1% 6% 8%
• The increase in Revenue in 2010 and 2011 driven by revenue from consumers transitioning from wireless-G to wireless-N technology and service provider division.
• The decrease in gross margin in 2011 was attributable to a higher % of revenue from sales to service providers, which generally carry lower gross margins.
• Gross Margin : Retail = 17%, Commercial = 23%, Service Provider = 9%
Business Performance
Dupont Analysis
DuPont Ratios 2007 2008 2009 2010 2011Tax Burden 59.81% 39.81% 28.66% 55.81% 73.56%
Interest Burden 118.01% 91.80% 101.56% 99.85% 99.47%EBIT Margin 8.95% 6.64% 4.67% 10.13% 10.57%
Asset Turnover 132.06% 126.81% 108.45% 115.60% 121.58%Leverage 148.34% 149.94% 152.87% 155.93% 152.07%
ROE 12.37% 4.62% 2.25% 10.17% 14.30%
The competitors
Company Name Ticker stock price Forward P/E EBIT/TA EBIT/EV
NetGear Inc NTGR 38.2 12 23% 11%
Cisco System Inc CSCO 21.15 10.63 19% 10%
Hewlett-Packard Co
HPQ 23.83 5.39 70% 13%
Aruba Network Inc ARUN 22.28 27.17 -227% -44%
Adtran Inc ADTN 30.95 13.75 52% 11%
The Multiples
NTGR CSCO HPQ ARUN ADTN Industry Ave
Market Cap.
1450 113910 47220 2450 1980
Current P/E
15.95 16.45 8.36 46.45 14.59 23.6 13.84
Forward P/E
12 10.63 5.39 27.17 13.75 25.1 15.67
Profit Margin
7.74% 15.61% 4.75% 12.80% 19.32% 5.80% 11.00%
P/B 2.3 2.31 1.2 5.91 2.87 4.4 3.165
P/S 1.22 2.54 0.38 4.67 2.78 N/A 2.318
ROA 10.40% 7.09% 5.33% 0.01% 15.66% 9.40% 8%
ROE 16.00% 14.74% 14.64% 18.81% 21.92% 10.00% 16%
The Target Price from Multiples
Target P/E 13.84
EPS 2.41
Target Price 33.35
Recommendation
Comparable valuation - $33.35 DCF - $28.08 Target price: $30 Current price: $38.44
Final recommendation: put on watch list and review the stock if price drop below $33