NAVTEQ

Solomon's Select, by Mark Robertson, Managing Partner February 1st, 2007

Maps-on-demand are becoming pervasive and usage is steadily increasing.

NAVTEQ charts the course others follow. There’s something quite natural about featuring a leading producer of digital maps while celebrating Punxsatawney Phil and celebrity coverage of another annual shadow watch.

To paraphrase Barry Manilow, “Who draws the maps the whole world drives?” NAVTEQ is not the only producer of digital maps, but they’re clearly a leader on a pretty solid path. For more information on the company, its history and road ahead, see: www.navteq.com.

Growth

Sales growth at NVT has been greater than 40% for the past five years. Actual sales growth for “a challenging 2006” is estimated at 16.8%. The highest penetration growth has been in middle class vehicles — an important underpinning of intermediate growth expectations. Growth comes from in-dash applications and portable devices (GPS, cell phones, PDAs.)

NAVTEQ (NVT) — Recent Sales Trend. This emerging provider of digital maps designs and builds the information that fuels an ever-increasing appetite for GPS and map quests. The sales track record has been fairly steady in recent years.

Profitability

The trailing 4-year average for net margin is 17.6% and Value Line has projected 19.3% for 2006 and 20.6% for the long-term forecast.

NAVTEQ (NVT) — Growth while achieving Profitability. Growth isn’t coming at the expense of margins as a fairly steady track record and expectations for net margin in the 20% range is the general consensus.

Valuation

The industry average projected P/E is 25×. NVT has a projected annual P/E ratio of 25×. What conclusions do you draw from the accompanying chart for characterizing projected P/Es versus EPS growth forecasts?

NAVTEQ (NVT) — P/E Projections. This chart plots projected average P/E versus EPS growth forecasts for a number of application software companies. At an assumed growth rate of approximately 20%, industry trends suggest that a P/E of 24-25x would be typical. Navteq’s higher quality rating suggests that a higher projected P/E is “defensible.”

Expected Returns, Quality & Conclusions

Based on a price at the time of the study of $35.12, the projected annual return was 17.6%. The quality rating is 73.6. The company has no debt and a financial strength index of 91%.

What did we do before MapQuest? Maps-on-demand are becoming pervasive and usage is steadily increasing. NAVTEQ will hold a conference call (webcast) on February 8, 2007 at 5 PM ET to discuss fourth-quarter and full year results for 2006. More information is available at the company’s investor relations page on their website.

I went to MapQuest and entered pot-of-gold and end-of-the-rainbow and a NAVTEQ map of Wheeling, Illinois came up. Time for a road trip?

Mark Robertson

Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.