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 (NYSE: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.
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
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