Motorola Valuation – Part 2

Last I month I asked the question “Are Motorola Shares a Bargain at Nine Bucks?” To help answer that I decided to do rough valuations for each of the company’s major business segments (mobile devices and networking/mobility). Carl Icahn has been involved with Motorola (in fact he won two board seats from the company this week) and has been calling for the firm to spin off its cell phone business, which they have agreed to do sometime next year. Hence, my desire to value each segment separately.

I came up with an ~$8 value estimate for the non cell phone division (Motorola Valuation – Part 1). With Motorola trading at $9 and change right now, the market is essentially saying the cell phone business is worth next to nothing. Below are my estimates for that segment. My main assumption is a 5% operating margin (half of the 2004-2006 average due to more intense competition nowadays) and relatively steady sales from here on out. As always, I try to be realistic, and this is by no means an extremely optimistic projection.

As you can see, the cell phone segment might not be worth anywhere near what it would have fetched between 2004 and 2006, but it does appears Wall Street is too pessimistic about Motorola. Investors are getting the business for less than $2 per share (according to my numbers), which should prove conservative if the new CEO for the phone business can get it back into the black as early as next year.

If you add my two segment valuations together, you get a per share value of $11.50 for Motorola, which is about 20% above current levels. I can understand Carl Icahn’s interest, although he clearly was too early on this one, getting in at much higher levels.

Full Disclosure: No position in MOT at the time of writing

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2 Thoughts on “Motorola Valuation – Part 2

  1. Wayne Mulligan on April 8, 2008 at 8:06 AM said:

    Great analysis – this was a pretty “accessible” series of posts.

    A 20% discount probably isn’t enough of a margin of safety to pull the trigger on a trade here though. If folks are already in the position though it might make sense to think about writing covered calls against it for some income.

    -Wayne

  2. Jack Miller on April 9, 2008 at 1:34 PM said:

    Many thanks for digging into the numbers.

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