Not All PC Hardware Companies Are in Trouble
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the biggest stories in the tech sector lately has been the rumored downfall of the PC hardware industry. Several very large PC firms have been reporting slowing sales, and in some cases, posting quarterly losses as a result of poor demand. However, one branch of the computer sector has been doing rather well as of late. PC wholesalers, on the whole, are growing earnings quite well, and priced attractively to boot. One company that has been doing particularly well is Ingram Micro (NYSE: IM).
Company at a glance
Ingram Micro is the world’s largest wholesale IT distributor, and also offers supply chain and logistics solutions to customers worldwide. The company sells a huge range of products, including network hardware, peripherals, rack servers, software, authentication devices and cameras. The stock has a market cap just shy of $3 billion, and employs around 20,800 people. The stock price is just about flat in the last twelve months, tacking on 2.4%.
Ingram has been delivering some fairly solid EPS growth in the last few years with annual EPS growing from $1.33 in 2009 to $1.95 in 2012 for a 46.6% increase over the period. These full-year figures have consistently beat analyst estimates, despite growth somewhat lagging the computer hardware industry. In the most recent report for Q4 2012, EPS beat by 26.5%. Global sales totaling $11.38 billion set a quarterly record, up 14% compared to same period in 2011. Gross profit of $661.2 million also set a quarterly record up from $554.3 million in Q4 2011. The Asia-Pacific region clocked an especially strong performance with an 11% year-over-year revenue increase driven by strong sales in China and India.
For the full-year, worldwide sales were up to $37.8 billion from $36.3 billion 2011, with the gross margin up to 5.38% from 5.25%. Management has a fairly optimistic outlook for 2013, expecting revenue growth in the low teens. Furthermore, the company’s 1 year EPS growth rate of 12.3% is well above the computer hardware industry average of -14.5%.
Two of Ingram’s competitors, Arrow Electronics (NYSE: ARW) and Tech Data Corp (NASDAQ: TECD), haven’t been delivering the same kind of top line growth in the last few years, although earnings have been fairly consistent from both. Tech Data earnings grew from $2.40 per share in 2009 to $5.09 in 2012, but had a downside surprise for fiscal 2013 of around 5% with misses in Q2 through Q4 2013. Arrow's annual EPS shot up from $1.68 in 2009 to $5.19 in 2011, but pulled back to $4.40 for fiscal 2012. Analysts expect the same figure for fiscal 2013. With quarterly revenue growth of 14%, Ingram’s top line growth is easily higher than Arrow’s -1% and Tech Data’s 5%.
Valuations and metrics
Ingram currently trades at 9.82 times TTM earnings and only 8.39 times forward earnings. With a spectacularly low price to sales of 0.08, and a 5 year expected PEG ratio of 0.6, the stock looks very, very cheap compared to the broader market. However, the computer wholesale industry as a whole looks undervalued, with competitors Arrow and Tech Data trading at similar P/E and P/S multiples. The industry has an average P/E of 9.86 and an average price to sales of 0.16. As such, Ingram isn’t that much cheaper than its industry.
It looks as if it isn’t all gloom and doom for computer hardware companies after all. Currently, wholesalers seem to be doing pretty well in terms of earnings, and the industry is trading at a substantial discount to the broader market. Ingram Micro is doing especially well in terms of top line growth. While it isn’t that much cheaper than the competition at the moment, the company’s solid performance puts it ahead of the pack for now.
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