Ingram Micro Inc. (IM) is Cheap…But for a Reason

Page 1 of 2
Ingram Micro Inc. (NYSE:IM) has underperformed its peers over recent years.  The shares have not enjoyed the same gains as similar stocks within technology due to margin pressure and lower earnings growth.  Ingram Micro has had many issues, ongoing problems with an ERP implementation, increasing competitive pressure, concern over their ability to integrate Brightpoint and softening demand in its core distribution business.  That said, the stock looks inexpensive and the negative sentiment may be more than priced into the shares.  Ingram Micro’s growth profile has improved.  Primary concern from the Street now surrounds management’s ability to execute on acquisition integration and improve profitability in a somewhat difficult operation environment.
Ingram Micro Inc. (NYSE:IM)Ingram Micro Inc. (NYSE:IM) description

Ingram Micro is a wholesale distributor of information technology across the world.  It also provides sales, marketing and logistics services globally.  IM distributes equipment from network, hardware, computer peripherals, point of sale (POS), mobile, and consumer electronics manufacturers.

The company made three acquisitions in 2H12, BrightPoint, Aptec and Promark Technology.  BrightPoint further expands IM’s exposure to mobile technology and accounts for around 95% of the incremental revenue from acquisitions.  The other two bolt-on acquisitions also improve the revenue profile of Ingram Micro.  Aptec expands the geographic footprint in Africa and the Middle East and Promark increases IM’s government exposure.

Improved profile…

IM’s growth outlook has improved over the past six months and shareholders could benefit from the acquisitions and other changes.  First, Paul Bay has taken over as President of North American Operations and is charged with growing the higher margins services business.  While this will take time, it should contribute positively to margins over the coming years.  Second, the acquisitions mentioned above combined are expected to result in at least a 15% increase in sales.  The Brightpoint acquisition is the most influential due to its size and different markets.  It increases exposure to mobile technology and smart phones. This improves top line growth since this end market has an above average growth forecast.  Specifically, exposure to Apple Inc. (NASDAQ:AAPL) increased from 6% of sales prior to the acquisitions to 11% after.  This is major since Apple sold over 130 million iPhones in 2012.  On top of this Apple is rumored to be launching a lower cost iPhone in 2013, which could put IM technology into the hands of many more users around the world.  Also, margins should improve since Brightpoint is a more profitable business.  There is also an opportunity for cost synergies that would be realized over the next few years.  Synergies can help offset margin pressure from an increasingly competitive environment.

…and IM’s cheaper than competitors…

IM trades at 0.84x book value, up from 0.74x earlier this month, but below the 1.0x multiple of competitors. IM’s TTM P/E is 9.1x, slightly below competitor SYNNEX Corporation (NYSE:SNX), trades at 9.17x, and Tech Data Corp (NASDAQ:TECD), trades at 10.8x earnings.  SYNNEX, Tech Data, and IM all have debt to equity ratios that are quite similar so it is not a discount due to higher debt ratios.  On top of this SYNNEX and Tech Data have negative earnings growth while IM doubled its income in the last year.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!