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An Exceptional Opportunity – Black Box Corporation - BBOX

September 25, 2009 | About:
BBOX [NDQ]: Sep. 24, 2009 $25.15

52-week range: $16.24 (Mar. 9, 2009) - $37.67 (Jun. 19, 2009)

Dividend = $0.06 quarterly = 0.95% current yield


Black Box Corporation provides ‘Comprehensive Communications

& Infrastructure Solutions’ to businesses in North America, Europe and elsewhere. The company provides voice solutions, premise cabling, and other data-related services and products, as well as offers technical support for its solutions that include consultation, site surveys, design and engineering, project management, single-site and multi-site installations, remote monitoring, and certification and maintenance of voice, data, and integrated communication solutions. It sells its products and services through catalog, Internet Web site, and voice and data services offices. The company serves small organizations, corporations, and institutions. As of March 31, 2009, it served approximately 175,000 clients in 141 countries worldwide. The company was founded in 1973 and is headquartered in Lawrence, Pennsylvania.

The overall stock market went up dramatically from the March 2009 bottom. BBOX shares followed with a move from $16.24 to $37.67 between March 9th and June 19th. Their fiscal Q1 report seemed disappointing at first blush with GAAP earnings of $0.44 versus $0.73 and the shares slid to close yesterday at $25.15. Read the company’s detailed report, however, and you learn that Q1 EPS were $0.71 versus $0.72 on a continuing operations [non-GAAP] basis.

Zacks’ and the overall consensus estimates from others are now at $2.84 /share for FY 2009 and $3.12 /share for FY 2010 (FYs end March 31 of the following year). That makes the projected P/Es < 8.9x this year’s and 8.1x next year’s expectations. Compare those multiples with their historical levels to see just how cheap these shares are right now.

Here are the per share numbers from continuing operations as reported by Value Line:

FY ............ Sales ....... C/F ......... EPS ......... Div. ......... B/V ......Avg. P/E

2004 ........ 31.76 ..... 2.44 ........ 1.94 ........ 0.23 ....... 29.13 ...... 21.9x

2005 ........ 41.02 ..... 2.92 ........ 2.13 ........ 0.24 ....... 30.76 ...... 19.9x

2006 ........ 57.99 ..... 3.32 ........ 2.00 ........ 0.24 ....... 34.22 ...... 20.9x

2007 ........ 58.05 ..... 3.25 ........ 2.22 ........ 0.24 ....... 36.55 ...... 16.8x

2008 ........ 57.02 ..... 3.77 ........ 2.59 ........ 0.24 ....... 36.93 ...... 10.8x

Every measurable data point is higher now than previously yet the share price is not reflecting the gains in sales, C/F, B/V or earnings.

The backward-looking 10-year median P/E has been 18.0x and the lowest annual multiple of the past decade (excepting 2008’s brutal market) was 15.3x. A rebound to even 13 times this fiscal year’s estimate would bring BBOX back to $36.92 /share. That target is almost 47% above yesterday’s close.

Is it a reasonable goal? Sure. As noted earlier BBOX actually traded as high as $37.67 this past June and hit levels higher than during each calendar year since 1998! The absolute lows were $33.10, $31.80, $35.70, and $34.50 in 2004-2005-2006 and 2007 respectively.

As of June 27, 2009 debt was just 28% of total capital. Standard and Poors gives BBOX a ‘B+’ for financial strength. Value Line notes that BBOX earns an 85th percentile ranking for ‘earnings predictability’ (with 100th being best).

Dividends were initiated in 2002 and have risen three times since to today’s $0.24 annual rate. Their 0.95% current yield is better than what’s now available on bank deposits and short-term treasuries. It’s well covered at about 9% of last year’s net EPS.

I’m using the recent share price weakness to accumulate a major position with a minimum target of 40% - 50% upside.

I’m also a writer (seller) of puts with March expirations. Here are yesterday’s prices for the most attractive puts along with their respective break-even prices.



Option ..........................Premium /Share .............. Net Purchase Price

........................................................................... (if exercised)

March $22.50 Puts ............... $2.00 ........................... $20.50

March $25.00 Puts ............... $3.00 ........................... $22.00

March $30.00 Puts ............... $6.20 ........................... $23.80

All of the above look attractive to me (as a seller) right now.

I'd be an aggressive buyer of BBOX shares at any of those net purchase prices anyway.


Disclosure: Author is long BBOX shares and short BBOX options.

About the author:

Dr. Paul Price
http://www.RealMoneyPro.com
http://www.gurufocus.com/peter_lynch.php
http://www.TalkMarkets.com
http://www.MutualFunds.com

Visit Dr. Paul Price's Website


Rating: 4.0/5 (5 votes)

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