Shares of Motorola (MOT) are up 8 cents, or 1.2%, at $6.86, after Morgan Keegan analyst Tavis McCourt this morning writes to clients that he’s taken a “deep dive” into Moto, after spending six hours with company management yesterday, reiterating an “Outperform” rating on the stock and a range of valuations from $7 to $12 depending on the progress of the mobile devices unit, which Moto is planning to spin off.
So-called Enterprise Mobility, which comprises sales of voice and data networking equipment, wireless networks and industrial-strength radio systems, will comprise about 70% of sales and 80% of cash flow once the company spins out handsets, which is expected to take place early next year.
The unit could have sales growth of 5% to 8%, or better than that if Congress funds a proposed nationwide wireless network for emergency medical services and other “first responders.”� Operating margins in the business are higher than company average and should over time return to 2007 to 2008 levels, he writes. Also, the enterprise products have market opportunities overseas, which shields revenue from the vicissitudes of state and local U.S. budgets, argues McCourt.
I should note that there’s been some uncertainty of late over how much further Moto’s phone business will shrink before the spin-off, and whether it will be able to return to profit, a factor that could help or hamper a public offering for the business.
– Tiernan Ray, Barrons.com
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