Legg Mason report on Computer Horizons (CHRZ), Part I
Bloomberg newswire code: LMR
Article date: 10/1/96
Bloomberg date: 10/17/96
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CHRZ's stock has been strong over the past month. We believe the stock's recovery from its lows in July reflects encouraging signs about the development of its Year 2000 services business. While we have maintained a conservative estimate for the third quarter ($0.14 per share, down from $0.17 a year ago), we believe revenues and EPS for the September period will show improvement over disappointing June quarter results. Our rating remains Outperform-2 with a revised price objective of $36 per share, a potential gain of 26% from the current level. This target represents a multiple of 33x estimated 1997 EPS of $1.10 and 24x our 1998 projection of $1.50. We are estimating 1996 earnings of $0.66 per share, essentially flat with 1995 EPS of $0.64.
Expected 3Q96 Results_Improvement Over Disappointing 2Q96.
CHRZ's 2Q results were negatively impacted by the cancellation of several projects in May be a major customer, AIG. During the third quarter, the company has been successful in redeploying the displaced staff with other customers, with billable headcount back to record levels by the end of the September quarter. However, the AIG business was in high-margin solutions projects, with this revenue replaced with lower margin contract staffing business. Thus, we expect gross margins for the third quarter to be down year-over-year (29.1% versus 30.7%). In addition, the company continues to invest heavily in marketing its Year 2000 compliance services, a factor that will likely magnify the impact of lower gross margins on EPS. Our Q3 estimate is $0.14 versus $0.17, down 16%, on revenues of $58 million, up 13% from 1995 levels. Our 3Q estiamtes compare to revenues and earnings per share of $56 million and $0.13 achieved in the previous quarter.
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Philip |
