Commentary

Valuation: Altera Corporation. (ALTR)

Company Review: Altera Corporation. (ALTR)

Company Profile: Altera Corporation. (obtained via Google Finance)

Altera Corporation designs, manufactures and markets programmable logic devices (PLDs), HardCopy structured application-specific integrated circuit (ASIC) devices, pre-defined design building blocks known as intellectual property cores (IP cores) and associated development tools. The Company’s PLDs, which consist of field-programmable gate arrays (FPGAs) and complex programmable logic devices (CPLDs) are semiconductor integrated circuits, or chips, that are manufactured as standard chips that its customers program to perform desired logic functions within their electronic systems. Its HardCopy enable its customers to transition from a high-density FPGA to a non-programmable implementation of their designs for volume production. The Company’s customers can license IP cores from it for implementation of standard functions in their PLD designs. Customers develop, compile, and verify their PLD designs, and then program their designs into the Company’s PLDs using its development software, which operates on personal computers and engineering workstations. Altera also supplies metal oxide semiconductor (CMOS) PLDs.

 Business and Management Review1) Is the business simple and understandable? 

Altera’s business strategy is easy to understand as they create software tools intellectual property, and customer support to provide high-value programmable solutions to customers worldwide.

2) Does the business have a consistent operating history? 

The company has a consistent operating history as it had grown 69% in its operating Net Income from 2001 to 2006. ALTR management effectiveness and profitability ratios show a performance that out beat the industry.

 3) Does the system have favorable long term prospects? 

This company has favorable long term opportunities as customers in the communications, computer and storage, industrial, and consumer markets use the company’s software to configure and program these chips for a wide variety of end uses.

 4) Is management rationale? Management seems to be following a rationale behavior.. 5) Is management candid with its shareholders? 

The company shows strong investor relations as they lay out all relevant information in their website.

 6) Does management resist the institutional imperative? We do not believe management is following institutional imperativeness. Financial and Value ReviewDefensive1) Size of firm 

The company has a Market Cap higher than $2 billion. “Pass”.

 2) Strong financial condition 

Altera has a current ratio of 3.1.  “Pass”.

 3) Earnings stability 

This company does not posses a positive Net Income for the past 10 years. “Fail”.

 4) Dividend record 

ALTR has not paid dividends for the last 10 years. “Fail”.

 5) Earnings growth 

Its EPS has grown at least 1/3 for the prior 10 years. “Pass”.

 6) Price to earnings analysis 

The company’s PE ratio is higher than 20. “Fail”.

 7) Price to book analysis 

The company has a P/B higher than 2.5 and P/B*P/E higher than 50. “Fail”/”Fail”.

 Conclusion 

We would not recommend Altera to defensive investors since it only pass 3 of the 8 tests.

 Enterprising:
1) Strong financial condition
 

This company’s current ratio is 3.27 and possesses debt to NCA lower than 1.1. “Pass”/”Pass”.

 2) Earnings stability 

Altera Corporation has a positive net income for the past five years. “Pass”.

 3) Dividend record 

Nowadays ALTR does not pay dividends. “Fail”.

 4) Earnings growth 

Its earnings are greater than five years ago. “Pass”.

 5) Price 

Altera’s stock price is higher than 150% of net tangible assets. “Fail”

Conclusion: 

We will not suggest the acquisition of this company by enterprising investors since it pass 4 of the 6 require tests.

 Valuation: 

In accordance to our Equity valuation model, Altera Corporation is worth $18.92.

 Opinion: 

Since the company is currently trading at $18.90 they seem trading at par. However, we do not find them to be good acquisitions for enterprising or defensive investor.

None of our staff members at Modern Graham hold a position in Altera Corporation at the time of publication.  Also, please read our disclaimer and Our Methods.

Andres Romero
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