Mike, Barron's climbs aboard my CHRZ idea......so you see I am serving up the blue-plate value buys prior to the street getting wind -g-
August 16, 1999
Life After Y2K
By Rhonda Brammer
Sometimes the price of success is really stiff! Consider a high-tech outfit that a little over a year ago was all the rage: Computer Horizons. In April '98, investors deemed it worth a cool $1.6 billion. Today, it sports a value of less than $400 million.Not even one times sales. This New Jersey-based firm, along with a host of others, was helping Corporate America get ready for the Year 2000 and cope with the notorious Y2K bug.
Alas, it -- and others like it -- did the job all too well. The bulk of computer systems of Fortune 500 firms appear to be amply prepared for the new millennium. For them, no mistaking the year 2000 for 1900.
The bad news, though, is that the high-margin Y2K sales for the companies fixing the bug have fallen precipitously. For example, second-quarter revenues from Computer Horizons' Year 2000 work plunged a whopping 60%.
As a result, for all of 1999, the company is expected to earn no more than 90 cents a share, down sharply from last year's $1.41.
Which explains why shares that last year topped 53 recently traded as low as 9 and currently change hands at 13.
Now the question is, has Wall Street, as it is not loath to do, overreacted?
You bet, insists Bob Perkins, a card-carrying contrarian and manager of the Berger Small Cap Value funds. Both Bob and his funds have been around a spell. And while his 10-year performance is good -- he's up almost 15% a year, on average, versus 12.4% for the Russell 2000 -- his five-year numbers are even better: an annualized 20%-plus, versus 15%-plus for the Russell.
Not the least of his investment virtues is a knack for spotting fallen angels -- issues that are down 60%, 70%, even 80%, selling in the single digits, though they boast good balance sheets and plausible prospects.
By way of example, last September, after a chat with Bob, we wrote up Brooks Automation at 9 1/2 -- a stock that this year hit 31 and now trades at 25 1/4 . (His entire position was gone at 22.)
"No," sighs Bob, when asked. "I don't have another Brooks." There just aren't, he explains, the sort of bargains in this market that he was able to come up with in the past.
However, Computer Horizons, in his view, over the next six to 12 months could come close to doubling.
Clearly, in their haste to dump the stock, investors have completely lost sight of the fact that Computer Horizons is no Y2K fly-by-night. It was around long before anyone realized there was such a problem, has significant and thriving businesses unrelated to the bug and, most important, is likely to be flourishing when the Year 2000 problem is only a memory, and a dim one at that.
Founded by its current chief exec in 1969, Computer Horizons has been publicly traded since 1972. During its three decades, primarily as an information-technology staffing company, it has built a stellar roster of clients, including such blue-chip giants as AT&T, Prudential, Chase and Ford. The roster includes more than half of the Fortune 100 and these provide repeat business year after year.
Moreover, for seven years now, the company has been growing its offering of higher-margin services and solutions -- from a mere 5% of sales in '93 to a manifestly meaningful 44% last year.
Besides Y2K solutions, Computer Horizons offers what it dubs E-Solutions: customer-relationship management, network services, e-business and Princeton Softech software, which, as one press release trumpets, has helped over 2,000 of the world's largest companies "move into the e-dimension."
Revenue from E-Solutions, which has already surpassed declining Y2K sales, will more than double this year and, in 2000, grow another 75%-100%, Perkins and his crew believe. That's why they think their $1.10 a share estimate for next year could actually prove low.
At the end of March, Computer Horizons was debt-free, with a book value of over $8 a share (and a tangible book of more than $6). At 13, the stock is going for 75% of sales and under 12 times next year's estimate.
A kicker: There has been talk that a piece of one of Computer Horizons' fast-growing subsidiaries, RPM Consulting, might be offered to the public. With sales of about $30 million, RPM is a very small, but valuable, part of a company that last year boasted revenues of over $500 million.
Providing high-end network-integration solutions, RPM competes with companies like International Network Services, which, as it happens, just last week got a $3.7 billion buyout offer from Lucent Technologies.
Now International Network, whose annualized sales are approaching $400 million, is far larger and may well deserve a premium to RPM.
However, if the same multiple that INS fetched -- about nine times sales -- were applied to RPM, the small subsidiary would be valued at $270 million, or nearly $9 per share of Computer Horizons.
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