sector: technology company: quantum corporation (qtm)
DESCRIPTION
SR. ANALYST : BENJAMIN SOMMER JR. ANALYSTS : SIGMUND CORREA, FADI HUMAID, JAKE EPSTEIN, JASON GOTTLIEB, ALEX PUGLISI. SECTOR: Technology COMPANY: Quantum Corporation (QTM). Investment Recommendation. Key investment drivers 1. Increase in IT service revenue with reduced costs - PowerPoint PPT PresentationTRANSCRIPT
SECTOR: TechnologySECTOR: TechnologyCOMPANY: Quantum Corporation (QTM)COMPANY: Quantum Corporation (QTM)
SR. ANALYST: BENJAMIN SOMMERJR. ANALYSTS: SIGMUND CORREA, FADI HUMAID, JAKE EPSTEIN, JASON GOTTLIEB, ALEX PUGLISI
Investment RecommendationInvestment Recommendation
QTM
Recommendation
BUY
Current Price $2.65
1yr Target Price
$3.97
% Upside 49.9% Key investment drivers
1. Increase in IT service revenue with reduced costs 2. Well positioned with StorNext development 3. Significant patent advantages
Outsourced Data Hosting Micro-industryOutsourced Data Hosting Micro-industry
• IT service providers specializing in cloud hosting and software development for a variety of hardware and software platforms, as well as providing virtualized storage services primarily for corporate clients.
Revenue GenerationRevenue Generation
4
Storage Center Leassors/Buildings
Storage Facilities
Data Hosting and Management
IT/Software Services
Worldwide client
accessibility
Composes 90%+ of Revenue Generation
Service and software support
for clients
Industry Breakdown (by Market Cap)Industry Breakdown (by Market Cap)
5
= $35.67 Billion
Major Players in Industry – By RevenueMajor Players in Industry – By Revenue
6
Company SnapshotCompany Snapshot
Beta Stock Price
Shares Outstanding
Market Cap (MM)
Enterprise Value (MM)
2010 Revenue (MM)
EBITDA(MM)
3.31 $2.52 225.4 $568.01 $720.45 $671.62 $72.25
• Primary Services– Provides cloud backup, recovery, and archive solutions
• Customer Base– Small businesses to multinational enterprises– US and international governments
• Products– DX series, StorNext, Scalar, Tape and Disk Drives
Trends: Trends: Global Bandwidth UtilizationGlobal Bandwidth Utilization
8Source: Mintel/U.S. Census Bureau, Service Annual Survey
CAGR 46%
Trends: Worldwide IT Spending Trends: Worldwide IT Spending ForecastForecast
Source: Gartner Quarterly IT Spending Forecast
Trends: Enterprise Demand for Trends: Enterprise Demand for Outsourcings Outsourcings
Source: CISCO VNI, 2010
CAGR 21%
2009 2010 2011E 2012E 2013E 2014E
Opportunities: PatentsOpportunities: Patents
Patent for the de-duplication and replication technologies
Products of the Year 2010 by Storage Magazine
504 patents and 96 pending patent applications
Opportunities: StorNextOpportunities: StorNextStorNext File System delivers…
o a shared disk file system used where large files can be shared by users without delay
oEnables high performance file creation, storage, and Data SharingoEnhanced Data Management & Protection featuresoOpens up market share potential for Apple customers to expand on existing IT departments, making their investments more efficient
DCF ForecastsDCF Forecasts
2011 2012 2013 2014 2015
EBIT $90.36 $110.79 $138.70 $173.44 $219.45 - Taxes 6.33 7.76 9.71 12.14 15.36
------ ------ ------ ------ ------ $84.03 $103.04 $128.99 $161.30 $204.09
+ D&A 57.49 54.75 52.14 49.66 47.29 - CAPEX (18.97) (19.35) (19.74) (20.13) (20.54)
- Δ in NWC 10.52 5.46 11.87 15.72 22.08 ------ ------ ------ ------ ------
Unlevered FCF $112.02 $132.98 $149.52 $175.10 $208.77 Net Present Value $432.91
ValuationValuation
Year 2011(e) 2012(e) 2013(e) 2014(e) 2015(e)
FCF $112.02 $132.98 $149.52 $175.10 $208.77
DCF
WACC 20.72%
Growth Rate
2.5%
DCF Value (50%)
$890.99
1yr Price $3.12
Comparables
TEV/EBITDA (%25)
$681.40
1yr Price $6.91
TEV/Revenue (%25)
$159.50
1yr Price $2.73% Weight
% Weight
1yr Target Price
% Upside 12%
1yr Target Price
$3.97
Risks & SensitivitiesRisks & Sensitivities
One Year Price Targets
CurrentPrice
RecommendationRecommendation
De-duplication patent advantages Exclusive Apple Mac OSX offerings Increased demand for outsourcing and IT
spending Recent acquisitions in the industry (TMRK)
QTM
Recommendation
BUY
Current Price $2.65
1yr Target Price
$3.97
% Upside 41.9%
Back-up slidesBack-up slidesTechnology Sector | Outsourced Data Hosting Micro-industry
17
WACCWACC
18
rD 6.92%
Tc 7.11%
D $368,941,000 37.79%
TEV $976,391,000
E $607,450,000 62.21%
rE 29.40%
WACC: 20.72% 100.00%
beta 3.30
historical return 11%
risk free rate 3%
CompCo AnalysisCompCo AnalysisCompany Ticker TEV Revenue EBITDA EBIT
TEV/Revenue
TEV/EBITDA
Quantum Corporation QTM 790.3 671.6 72.3 11.3 1.2x 10.9x
1VMWare, Inc. TMRK3,160.
0 2,860.0 692.0 219.3 1.1x 4.6x
2Rackspace Hosting RAX4,950.
0 780.6 235.0 79.6 6.3x 21.1x
3Intuit, Inc. INTU1,612.
0 3,550.0 1,060.0 139.0 0.5x 1.5x
4Bottom Line Technologies EPAY 559.1 167.6 27.6 66.0 3.3x 20.2x
5Teremark TMRK1,400.
0 340.7 82.1 31.3 4.1x 17.1x
High 4,950 3,550 1,060 219 6.3x 21.1xMean 2,214 1,606 417 103 2.5x 11.7xMedia
n 1,612 781 235 80 1.2x 10.9xLow 559 168 28 11 0.5x 1.5x
CompCo ValuationCompCo ValuationTEV/EBITDA1yr Financial Projection I $159.50 Implied 1yr Price Target $6.91 Upside (Downside) % 147%
Price/Sales: 1yr Financial Projection II $681.40 Implied 1yr Price Target $3.64 Upside (Downside) % 30%
TEV/Revenue:1yr Financial Projection II $681.40 Implied 1yr Price Target $2.73 Upside (Downside) % -3%
Net Debt $186.84 Shares Outstanding 225.4Current Price (04-10-2011) $2.80