Ingram Micro’s Shares May Trade Softer, Despite Solid June Quarter Results

Analyst Ananda Baruah of Brean Murray, Carret maintains his “buy” rating on Ingram Micro Inc IM, while raising his estimates for the company. The target price for IM is set to $24. IM reported its June quarter earnings and revenue ahead of the consensus. According to Brean Murray, Carret, “Operating margin of 1.28% was stronger than our 1.21% estimate, driven by strong leverage. Ingram guided Sep Q revenue about flat Q/Q, with stable gross margins and solid operating leverage… Despite the solid results and operating margins, we wouldn’t be surprised to see the stock trade softer than might be expected given that gross margin was softer than expected. Basically Ingram’s opex efficiency (and the primary source of our leverage thesis) has provided it the opportunity to use price (gross margin) to opportunistically take some share – but the continued operating leverage remains quite attractive.” Operating income increased ~$50 million on a $1.58B Y/Y increase in revenue, which implies a 3.2% contribution margin. Moreover, these results were achieved with a weaker gross margin. Operating leverage should remain strong over the next few quarters as Ingram should continue to reap the benefits of its cost reduction actions taken during the recession… This is the fourth consecutive EPS beat, yet the stock hasn’t moved much over the last six months (~10% appreciation). So we believe investors are still getting a chance to buy an asset that has demonstrated three quarters of meaningful improvement without being reflected in the stock,” the analyst says. Brean Murray, Carret has increased his EPS estimate for 2010 from $1.80 to $1.86. More Analyst Ratings here.