Motorola: Don’t Get Hung Up

We maintain our Hold recommendation for Motorola Inc. (MOT), a leading manufacturer of mobile handsets, network infrastructure and cable products.

In the most recent reporting period, the company’s mobile devices segment lost market share, accompanied by soaring operating losses, as Samsung recently retained the leading position in the U.S. mobile handset business. Additionally, sales of Home & Network Mobility products also declined mainly due to weaker demand and increased competition.

According to our view, sales challenges will continue throughout fiscal 2009 as the economic crisis intensifies on a global basis. Also due to economic conditions, Motorola delayed its divestiture of the mobile handset division and has taken further cost-cutting initiatives. Nonetheless, the current stock price, at historical low multiples, may be considered more favorable.

Motorola is currently valued in the market at 61.6 times our fiscal 2009 earnings estimates. This represents a significant premium to both the S&P 500 and peer group averages. However, with respect to P/S [price-to-sales] and EV/S [enter[rise value-to-sales] valuation metrics, the stock is trading meaningfully below the peer average. We maintain our six-month target price of $6, based on a P/S multiple of 0.42x our fiscal 2009 sales estimates, an improvement over current valuation levels.

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