Ingram micro. One large company
Ingram Micro (IM, $24.68, Buy): Trimming estimates on consumer related weakness and somewhat softer trends from enterprise. We are tweaking our forward estimates lower on Ingram to account for somewhat lower-than-expected spending from consumer and certain enterprise customers as well as increase competitiveness in the channel.
? Our expectations. Based on our resellers survey, we believe the company is seeing seasonal to slightly below trends in N. America while Europe remains mixed. We believe pricing still remains somewhat competitive particularly for consumer related products. Looking beyond the June-Q, we expect Ingram to point to a seasonal start in N. America with puts and takes on Europe (in addition to FX). We do believe pricing will stabilize gradually on rebate resets and price hike (by OEMs) benefits. We expect margins to gradually expand on improved mix (higher mix of cloud and services) and benefit from its recently announced restructuring activities. We also expect to get an update on IM’s relationship with Verizon’s dealer networks business, which led to lower-than-expected sales and gross margin pressure in the Mar-Q.
? Our estimates. We are tweaking our June-Q revenue and EPS estimates from $10.90bn and $0.54 to $10.88bn and $0.53. For the Sep-Q, we are now modeling sales up ~5% q/q to $11.41bn with essentially flat gross margin. Our EPS estimate is at $0.64. We also note that the company recently closed the acquisition of Arabian Applied Technology, which is expected to add about $200mn annually. Our FY15 estimates go from $47.12bn and $2.76 to $46.86bn and $2.72.
? Our take: Even with our number cuts, the stock is inexpensive, trading at ~9x P/E, which is below its peers and its historical average. We believe the current valuation metrics do not give the company enough credit for volume leverage, cost reduction efforts and focus on higher margin businesses. We maintain our Buy rating.
? Our 12-month target price of $33 is based on roughly 10x our FY16 non- GAAP EPS estimate of $3.26. Risks to our target price include: potential market share losses in Europe due to the significant restructuring efforts; a renewed pricing war between Ingram and its competitors if end demand fizzles; issues with IM’s enterprise-resource-planning (ERP) IT integration plans (though we do not see heavy lifting for the next few quarters).
