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Plantronics, Inc. - Are You Listening?

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July 18, 2010 – Comments (0) | RELATED TICKERS: PLT , S , DELL.DL

We noticed an article about nine CEOs that need to be fired. The reasons cited in the article as to why these people should be sacked were all fiduciary in nature.

Some of course would disagree with that assessment. They would argue for instance that Dan Hesse at Srint Nextel Corporation (NYSE: S) is doing a good job, that everywhere you look you see a Sprint ad, and that in time, those ads are going to pay dividends for the shareholders. Ye the stock price is 65% lower now than when Mr. Hesse started.

Another of the CEOs mentioned in the article is Michael Dell, CEO of Dell, Inc. (Nasdaq: DELL), whose recent tenure includes a 65% decline in share price, accounting troubles, charges of fraud, and allegedly that the company knowingly shipped millions of flawed computers.

About an hour after we read the article, we received a client request for a worksheet for Plantronics, Inc. (NYSE: PLT), a company we have heard of but had never taken the time to actually research.

So with thoughts of corporate shenanigans and CEO silliness fresh in our minds, off we went to do the clients bidding.

Basis
Financial information related to Plantronics, Inc., contained in this report, is based on the company’s most recent SEC Form 10-K filing, for year ending March 30, 2010, as filed with the Securities and Exchange Commission on June 1, 2010.

What They Do
The company is a designer, manufacturer, and marketer of lightweight communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand.

In addition, the company manufactures and markets, under its Clarity brand, specialty telephone products, such as telephones for the hearing impaired, and other related products for people with special communication needs.

The company's headsets are used in offices and contact centers, with mobile and cordless phones, and with computers and gaming consoles, allowing the user the freedom to use their hands while staying connected to their communication or entertainment device.

The company's headsets are widely used with cell phones, in contact centers, in the office, in the home, for applications such as Unified Communications, with Voice over Internet Protocol, for gaming, and for other specialty applications.

The company ships its products to 70 countries through a worldwide network of distributors, retailers, wireless carriers, original equipment manufacturers, and telephony service providers, and was founded in 1961.

Short-Term Investment

The stock has first resistance at $30.56, a 1% increase for its recent close of $30.27, and first support at $28.44, a 6% decline from its recent close.

Coupling first resistance with the current downward trend line, we realize this is point that many at which many active traders may want to start a position.

Based on the current Stochastic indicator, we think the stock price will decline from its recent close, which sets the stock up as good short.

Long-Term (5 Year Hold) Investment
One of the investment metrics we like to use is a comparison of the Earnings Yield to the Yield for a Corporate AAA rated bond. With an earnings yield of 5.98% and a AAA rated corporate yield at 2.23%, the earnings yield surpasses the bond yield by slightly more than 2.5 times.

Additionally, the company ended FY10 with no Debt, Current, Quick, and Cash Ratios that were simply outstanding, Return on Invested Capital of almost 43%, and Simple Free Cash Flow of almost $2.00 per share.

Certainly these ratios are outstanding. But all is not perfect with the company's financials.

For instance, Accounts Receivable are outstanding an average of 53 days, while Accounts Payable are outstanding an average of 30 days. While we salute the benevolence of management in providing its suppliers a 23 day interest free loan, we wonder why senior management would allow this practice to continue?

We also note, that year over year Sales have been declining with an 11% decline between FY08 and FY09, and a 20% decline between FY09 and FY10.

Finally, we wonder why management would spend $1.01 per share buying back company stock and yet spend only$0.20 per share on its shareholders in the form of Dividends?

Valuations
Based on our review of the company's FY10 financials we believe a Reasonable Value Estimate for the stock is in the $48 range. Normally we would be buyers of the stock in the $24 range, but because we think the stock carries additional risk brought on by management, we think a more prudent buy point would be in the $19-20 range.

Final Thoughts
On the surface, it appears to us that management is simply not paying attention to the company's shareholders, even asking them to increase the number of shares available for the company's stock plan by 1.2 million, and event that admittedly has always and will always, leave an extremely bitter taste in our mouths because it only serves to dilute the value of the stock.

With what seems on the surface, a lack of fiduciary concern for the company's shareholders, we have to wonder if perhaps the CEO, Ken Kannappan shouldn't be on the list of CEOs to be sacked.

We understand the issue with such a grand statement, who would guide the company going forward? But in the grand scheme of things, Mr. Kannappan came to Plantronics from Kidder, Peabody and Company where he was an investment banker, making us wonder if the current investment strategy isn't "me first" instead of shareholders first.

Wax

Worksheet
To download the Plantronics, Inc. Raw Value Worksheet, please click here.

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