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| Date: Tuesday 07th 2008f October 2008 01:53:34 AM |
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EPS Estimation for LF | ||||
| This is the heart of our analysis. All we try to do is to predict the company's profit for the coming fiscal year. I spent most of the analysis predicting revenue because without it, there will be no profit! Therefore, predicting revenue is essential for other components of the income statement. | ||||
| Revenue Estimation | ||||
| For the 12 months ending Sep 04, LF reports revenue of $ 714.9 M. In fiscal year ending Dec 03, LF booked $680 M in revenue. This is a 5.1 % yearly revenue growth. I believe LF can achieve flat revenue growth next year. Here is a few reasons why. First of all, management announces that holiday season will be significantly below expectations. Yet, the company still poise to grow 5% in top line. Finally, the company had increased its Research and Development budget for the last three years. A slew of new products coming out in 2005 will boost revenue. Therefore, I feel that flat revenue growth is fairly conservative. | ||||
| Q1 05 (predicted) | Q2 05 (predicted) | Q3 05 (predicted) | Q4 05 (predicted) | 2005 Total prediction |
| $ 71.6 M | $ 80.8 M | $ 230.9 M | $ 347.9 M | $ 731.2 M |
| Gross Profit Estimation | ||||
|
The toy industry is highly
stable. Even when competition at the low end squeezes profit margin, Leap
Frog reduces its cost by moving production overseas. I believe the key to
the company's success is the introduction of new products and leveraging its
brand name. This strength is what I believe will be the key driver of growth
for Leap Frog. Based on all of the above, I estimate the company's gross
profit margin to be 50% of sales. With estimated sales of $ 731.2 M, gross profit for fiscal year '05 is $ 365.6 M. |
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| SG&A Estimation | ||||
| We predict SG&A Cost to be $ 185.5 M for year 2005. This is a rise of 6% year over year. This is reasonable estimate given that revenue growth will be flat for fiscal year 05. R&D will rise to $70M from $57M in fiscal year 2003. | ||||
| Interest & Income tax expense | ||||
| LF has no long term debt at its balance sheet. In fact, it has a net cash of $120M as of Sept 04. This money would put around 5 M of interest income for the company.. LF paid around 37% of income tax over the last three years. Based on this, income tax is estimated to be $ 42.6 M. | ||||
| Shares Outstanding Estimation | ||||
| LF currently has no stock buy back program. I estimate that the number of shares outstanding will rise slightly to 61 M shares by next year due to stock option dilution | ||||
| Pro Forma Income Statement for LF (fiscal year ended on December '05) | |
| Revenue | $ 731.2 M |
| Cost of Goods Sold | $ 365.6 M |
| Gross Profit | $ 365.6 M |
| SG & A | $ 185.5 M |
| R&D expense | $ 70 M |
| Interest Expense | $ 5 M |
| Profit Before Tax | $ 115.1 M |
| Income Tax Expense | $ 42.6 M |
| Net Income | $ 72.5 M |
| Shares Outstanding | 61 M shares |
| EPS Estimate |
$ 1.19 |
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