MENTOR GRAPHICS CORP. $24.33 (Nasdaq symbol MENT; TSINetwork Rating: Extra Risk) (503- 685-7000; www.mentor.com; Shares outstanding: 116.1 million; Market cap: $2.9 billion; Dividend yield: 0.9%) makes hardware and software for improving the design of electronic products and speeding up their development.
For example, Mentor’s software lets automakers use less wiring in a car, identify potential safety issues and minimize electromagnetic effects on sensitive components.
In the quarter ended January 31, 2015, Mentor’s revenue rose 9.5%, to $439.1 million from $401.0 million a year earlier. Excluding one-time items, earnings per share gained 18.5%, to $1.09 from $0.92.
Mentor typically makes about 70% of its profits in its fiscal fourth quarter, which ends January 31. That’s the busiest period in its customers’ purchasing cycle.
Move to wired cars a major plus
The company holds cash of $230.3 million, or $2.00 a share, and its $230.4 million of long-term debt is a low 7.9% of its market cap. Mentor spends a very high 31% of its revenue on research to keep ahead in its competitive and constantly changing markets.
The auto business is one of the company’s biggest growth areas because the industry is quickly shifting from mechanical to electronic systems: electronics now make up roughly 40% of a car’s cost.
The stock trades at 13.2 times this year’s forecast earnings of $1.85 a share. The company raised its dividend by 10.0% with the March 2015 payment, to $0.055 from $0.05. The shares yield 0.9%.
Mentor Graphics is a buy.
