is a leading worldwide provider of technical network services and related products to businesses of all sizes. They also offer over 90,000 products through their mail-order catalogue. Black Box prides itself on providing unparalleled levels of technical support. The Black Box brand has earned a reputation for high quality and reliability. BBOX serves customers through its physical presence in 40 American states and 141 countries worldwide.
Despite solid fundamentals over the past decade BBOX shares have not reflected the growth in revenues, cash flow or book value due to valuation compression. This suggests that any regression to the mean in terms of valuation should produce attractive total returns for investors getting involved at today’s levels.
Black Box fiscal years end on March 31st of the following year. Their FY that ended March of 2009 coincided with the trough of the stock market that month and, not surprisingly, their relative valuation bottomed at the same time. EPS dipped in the first half of FY 2009 hit by recessionary conditions and the loss of its major business relationship with Avaya. Since then the general economy has begun rebounding and the Avaya connection has been reestablished.
The results for the quarter ended December 2009 showed positive year-over-year progress and the March quarterly results (due to be reported on May 13th) are expected to see better than a 50% YOY increase.
Here are BBOX’s per share numbers:
FY* | Sales | Price/Sales | EPS | Avg. P/E | B/V | P/BV | 52-wk Range |
2004 | 31.76 | 1.25x | 1.68 | 21.9x | 29.13 | 1.28x | 33.10 – 58.60 |
2005 | 41.02 | 1.17x | 2.13 | 19.9x | 30.76 | 1.53x | 31.80 – 50.40 |
2006 | 57.99 | 0.64x | 2.00 | 20.9x | 34.22 | 1.07x | 35.70 – 55.40 |
2007 | 58.05 | 0.54x | 2.22 | 16.8x | 36.55 | 0.84x | 34.50 – 46.40 |
2008 | 57.01 | 2.59 | 36.92 | 19.80 – 39.50 | |||
2009** | 54.00 | 0.53x | 2.30 | 12.6x | 38.60 | 0.75x | 16.20– 37.70 |
* FYs end March 31 of following year | |||||||
** FY 2009 data includes Q4 consensus estimates | |||||||
Consensus views for the current FY and next now run about $2.96 and $3.11 making the forward multiple about 10.7x this year’s and 10.2x next year’s expectations. Those are even better than the trough valuations for BBOX during March of 2009. Back then we were facing declining economic conditions and company fundamentals versus exactly the opposite situation today. A rebound to still below normal P/BV, P/E and P/S levels could easily bring BBOX shares back to > $40 within 12 months for gains of at least 26%. Indeed, BBOX traded above $35 just days ago and topped out between $46.40 - $58.60 during each calendar year from 2000 through 2007. Zacks carries a very conservative 12-month target price of $36.10 right now.
I’m a buyer of shares on dips and a writer (seller) of puts for December at strikes of both $30 and $35. Here are realistic numbers for those options:
Put Premium /Share | Net Cost ‘If Put’ | Margin of Safety* | |
Sell December $30 Puts | $2.85 | $27.15 /share | 14.4% |
Sell December $35 Puts | $5.30 | $29.70 /share | 6.36% |
* Percentage that “net cost” is below the $31.72 closing price of 4/27/10 | |||
Dr. Paul Price
www.BeatingBuffett.com
Disclosure: Author is long BBOX shares and short BBOX options.
