Motorola Inc. shares closed sharply higher Tuesday after an analyst initiated coverage of the stock with an “outperform” rating, saying he expects the company to be broken up next year, with the pieces bringing more value to investors.
Bernstein Research analyst Pierre Ferragu called Motorola “a combination of four business entities with no synergies” but said a breakup could yield $10 to $12.20 per share.
“We believe this is likely to happen in 2010,” Ferragu wrote.
Motorola’s shares gained 49 cents, or 6 percent, to close at $8.62.
Ferragu put a price target on Motorola’s shares of $11.
He valued Motorola’s networks division at 50 cents to 90 cents per share and said consolidation in the telecom equipment industry made the assets attractive to companies such as LM Ericsson Telephone Co.
The home division, which makes cable set-top boxes, could be spun off as a publicly traded company valued at $1.90 to $2.30 per share, he said.
The Enterprise Mobility Solutions unit, which includes radio devices, could go for $4.30 to $4.60 per share in a public listing or private buyout, he said.
And the devices division, which makes mobile handsets such as the Droid, was worth $1.80 to $3 per share, and was attractive to other handset makers such as the Sony Ericsson joint venture, he said.
He recommended investors “interested in actively participating in a major restructuring story” to buy Motorola shares, despite the risk of poor performance in the handset division in the first half of next year.