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Ingram Micro Inc. – A Global Leader at a Bargain Price
Posted by: Dr. Paul Price (IP Logged)
Date: August 27, 2012 01:12PM

Mr. Market has strange habits. He can shower a company with love or treat that same firm like dirt; often just months apart. Even more frustrating can be his lack of a good reason for being so fickle.

Case in point: Ingram Micro (IM), the world’s largest wholesale distributor of computer products and related services. IM posted all-time high revenues of more than $36 billion in 2011. It is something of a proxy for the overall worldwide comsumption of intelligent electronics. IM serves greater than 170,000 (reseller) customers spread over more than 100 countries.

The past decade was a good one for IM. Here are their per-share numbers in some key categories as reported by Value Line. EPS exclude non-recurring items.

2002 2011 % Increase
Sales $148.96 $243.03 63.2%
Cash Flow $1.15 $2.23 93.9%
EPS $0.49 $1.73 253.1%
Book Value $10.85 $21.89 101.8%
Aver. P/E 29.2x 10.7x (63.4%)

Like many technology-related companies IM saw its P/E and absolute price contract despite posting excellent results. Ingram Micro is net debt-free. As of June 30, 2012 they held $981.2 million in treasury cash against just $143 million in ST and $320 million in LT debt.

Consensus estimates for 2012 and 2013 now run $1.84 and $2.03 respectively. That puts IM at just 8.3x this year’s and 7.5x earnings about 18 months out. How cheap is that? Standard and Poors provides an interesting bit of data on each of the stocks they follow. It’s the annual high and low P/E at the company’s high and low share price during each calendar year.



The interesting takeaway from the S&P data was that IM traded for at least 10x operating earnings at some point in every year listed. In six of the other recent years it touched 14x or greater when trading at its yearly peak.

Today’s valuation is right at the absolute bottom for the past three years; something you can clearly see from the following graph. The absolute price of $15.21 is lower than the 2011 nadir and within shouting distance of the fleeting bottoms touched in 2010 and 2012 YTD. Meanwhile, book value and revenues per share have reached all-time highs.



I invest on fundamentals. Many others prefer to use technical analysis such as support and resistance zones. To some degree their actions becomes self-fulfilling. On that basis it’s nice to know that IM has shown strong buying support right around present levels over the past 40 months. Conversely, rallies have stalled in the $19 - $22 range.

That might be contributing to S&P’s somewhat conservative12-month target price of $18. That’s a respectable 18.3% above last week’s closing price and below the actual high points achieved during each of the past eleven years.



$23 seems eminently reachable for those with a 1 – 2 year time horizon. It represents less than 11.4x next year’s estimate. Ingram Micro peaked at $21.60 in April 2011 on what turned out to be full year EPS of $1.73.

Price / book value ratios at the last three calendar year highs were 0.93x, 0.99x and 0.88x. Year end 2012 book value is expected to be $22.75 /share. A minimum price goal of $20.50 or better seems reasonable on that basis.

Value Line notes IM’s 85th percentile ranking for stock price stability and 80th percentile score for earnings predictability (100th is best). Value Line calculates IM’s 10-year median multiple as 12. They assume that will still be normal in making their 3 – 5 year projected price range for IM of $30 -$45.

If you do buy IM the main decision may be whether to lock in gains the next time the shares hit $18 - $20 or to wait for the reachable $22 - $25 price that can be easily justified.

I’m planning to sell half my position at that first level while holding on to the rest for the full ride.

Disclosure: Long Ingram Micro shares



Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: Dr. Paul Price (IP Logged)
Date: August 27, 2012 01:41PM

http://www.beatingbuffett.com/?p=4112

Please use the link above to see the graphics that do not seem to be viewable here on GuruFocus.


Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: gurufocus (IP Logged)
Date: August 27, 2012 01:55PM

Paul,

the graphs are viewable.


Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: pravchaw (IP Logged)
Date: August 27, 2012 06:46PM

Free cash flow is very low for the company and capital expenditures very high. Morningstar points out the the company may not be earning its cost of capital. Its a very cyclical company obviously and leveraged to the economy.

I feel it can go lower from here and would be compelling around $13.00.


Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: Dr. Paul Price (IP Logged)
Date: August 28, 2012 04:49AM



Pravchaw.

Here are Value Line's numbers for IM's cash flow and capital spending in recent years (per share).
2012 includes H2 estimates.

................................................ 2008 ........2009 ...... 2010 ...... 2011 ...... 2012

....................... Cash Flow ...... $2.03 ..... $1.76 ...... $2.33 ..... $1.73 ..... $2.40
................ Cap. Spending .......$0.50 ...... $0.42.......$0.48 ....... $0.82 .....$0.85

Free cash flow looks quite healty.



Note to GuruFocus : I can now see the article's charts and graphs clearly. That was not the case yesterday.



Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: Adib Motiwala (IP Logged)
Date: August 28, 2012 02:59PM

Dr Paul,

thanks for posting this aricle. I have looked at IM on and off and never bought... I looked again. It started off getting interesting as the stock is down to $15 from $19 since i last looked...

However, IM did two acquisitions recently.

They did one large acquisition for $840 million that did $5.2b in sales in mobility / wireless (think Apple related sales). So the good balance sheet is gone. And they paid 0.16 ev to sales when their own Ev to Sales is 0.06. So 3x of what their current valuation is.

More important to me is the FCF of the new business. IM FCF conversion from Sales is low . $170m on $36b in sales. Maybe one should look at Gross Profits as Sales as their GP are pass through... $2billion in Gross Profits. So then FCF looks better at $170m out of $2b in gross profits.

However, if the new acquired business that did $5200m in Sales does even 7% gross margins (v/s 5.5% for IM), it would do $350m in Gross profits and say $35million in FCF. Paying $840million for that seems a lot I think.... ( unless synergies in SGA help them realize greater efficiencies)...

To conclude:

Net cash balance sheet gone. ( $400m in net debt)
FCF unpredictable (check 2011, 2010, 2009) $170, $100, $170million
ROE low
ROIC low due to high inventory and A/R ($7billion.)
Capital intensive business

Margins low / heavy competition / pressured core business....

Ah..Sorry this is a pass for me.


Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: kfh227 (IP Logged)
Date: August 28, 2012 05:09PM

Article should be about:
current assets: 8.2B
total liabilities: -5.4B
---------------------------------------
$2.8 billion

Fact: FCF positive in the $100s of millions.

market cap:$2.3 B

So, market cap $500 million less than the $2.3 Billion market cap. I know it is an oversimpilification as it ignores things like inventory that will always exist so it should be ignored.

But it still makes me wonder.


Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: Adib Motiwala (IP Logged)
Date: August 28, 2012 06:03PM

There is net debt of ~$400m now after the recent acquisitions. Ofcourse, what those do the balance sheet is unknown in terms of inventory , A/R etc. Maybe if the stock keeps dropping, it would be an interesting net net..


Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: Dr. Paul Price (IP Logged)
Date: August 28, 2012 06:47PM

Kfh,

You described the definition of every stock selling for less than book value.
No great mystery there.



Stocks Discussed: IM,
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Re Ingram Micro Inc A Global Leader at a Bargain Price
Posted by: kfh227 (IP Logged)
Date: August 28, 2012 06:49PM

The greater the current assets relative to long term liabilities, on this one, the lesser the importance of FCF and the impact of FCF growth lesser.

APPL has a low PE for reasons akin to this. Tons of cash growing at low interest rates. Even if FCF doubles in 4 years, the overall growth of the company is diluted by the cash horde that is doing nothing.


Stocks Discussed: IM,
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