Cypress Semiconductor CY
October 30, 2007 - 12:43am EST by
rrackam836
2007 2008
Price: 35.83 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 5,530 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

Description: -

The Cypress stub is cheap again.

SPWR has gone up 47% 9/30/2007 (CY’s Q3 end) while CY has just gained 23.5%). This has been likely due to the rise in the price of oil and the fact that SPWR is seen as an “alternative energy” source. No matter, adjusting for CY’s ownership in SPWR, the CY stub is trading at a negative EV (or a maybe even a small positive EV of double digit millions if you want to be ultraconservative).

CY’s business itself is well known and a lot of brokerage houses cover it (also we can read mpk391’s old CY writeup for background) – so I won’t go over it again.

Core CY did $855 million in sales in FY 2006 and $827 million TTM.

Here is a small table –


Current

9/30/2007

7/1/2007

4/1/2007

12/31/2006

10/1/2006

7/2/2006

4/2/2006

1/2/2006











Weighted average shares outstanding-diluted

158,857

158,857

158,857

155,699

179,271

179,087

145,306

144,915

133,188

Year end shares outstanding

152,808

152,808

152,808

152,675

144,844

141,898

140,941

139,345

137,036

Ownership in Sunpower

44.50

44.50

44.50

52.00

52.00

52.00

52.00

52.00

52.00





















Stock Price










Cypress

35.83

29.21

24.69

19.33

16.87

19.59

13.95

17.11

15.79

Sunpower

121.84

82.82

67.57

48.75

37.17

26.95

27.39

35.67

32.57











Market Cap










Cypress diluted

5,691.85

4,640.21

3,922.18

3,009.66

3,024.30

3,508.31

2,027.02

2,479.50

2,103.04

Cypress outstanding

5,475.11

4,463.52

3,772.83

2,951.21

2,443.52

2,779.78

1,966.13

2,384.19

2,163.80

Sunpower ownership

5,421.88

3,685.49

3,006.87

2,535.00

1,932.84

1,401.40

1,424.28

1,854.84

1,693.64











Stub market value










diluted

269.97

954.72

915.31

474.66

1,091.46

2,106.91

602.74

624.66

409.40

outstanding

53.23

778.03

765.96

416.21

510.68

1,378.38

541.85

529.35

470.16











Cypress total sales

1452146

1452146

1,292,818

1,185,268

1,091,553

1,043,054

979,959

935,229

886,396

Sunpower sales

624956

624956

455,970

336,899

236,510

191,342

147,897

109,602

78,736

Cypress stub sales

827.19

827.19

836.85

848.37

855.04

851.71

832.06

825.63

807.66





















Net Cypress Cash

942,121

942,121

810,032

283,086

398,082

371,277

319,946

233,958

186,716

Net Cypress Debt

600,000

600,000

600,000

398,996

598,997

598,997

598,997

599,997

599,997











Stub EV










diluted

(72)

613

705

591

1,292

2,335

882

991

823

outstanding

(288.89)

435.91

555.93

532.12

711.59

1,606.10

820.90

895.39

883.44











Stub EV/Sales










diluted

(0.09)

0.74

0.84

0.70

1.51

2.74

1.06

1.20

1.02

outstanding

(0.35)

0.53

0.66

0.63

0.83

1.89

0.99

1.08

1.09

Basically, 04/1/2007 timeframe would have been a good time to have put on this stub. But as can be seen, the market is pricing core CY at a negative EV. If we get to an EV/Sales of even 0.74, that seems to be a nice profit. Comparable semi companies trade at 1-3x EV/sales. Note, if we use Lehman’s figures for shares outstanding (I believe he is adding options excercisable), EV becomes - $226 million or an EV/Sales of 0.27 – still cheap.

Note that there are changes afoot that may be a catalyst for this stock. As recently as last December, Robert Chapman pressured (unsuccessfully) CY to spin off SPWR. There are apparently some concerns about whether this spinoff can be tax free and there is a recent Lehman report dated October 09, 2006, about whether “Can Cypress Spin-off Sunpower?”. Also, note the recent 13-D filed by Thirdpoint – another well regarded activist.

Anyway, I am not a tax expert but at the recent price looks to me like we don't need to calculate EV to the last decimal point, and can as well punt on these issues entirely.

The trade is $1 long CY, $0.95-$1 short SPWR.


Catalyst

a) Market recognizes embedded value of CY
b) Continues business momentum on the part of CY
c) Shareholder Activism
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