Lynch-Russell looking for $12 in a year.
An exceedingly bullish research report was mailed out last week. Put out by Lynch-Russell Research Group in Atlanta, written by Frederick E. Salzillo, Jr., Ph.D., it predicts $0.46 EPS this year!
I am unfamiliar with them, and I sure hope they're right. From the report:
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We believe the stock price could triple over the next twelve months
1. CITI has finished its dynamic transformation. EPS will explode next year and will grow at a 30-35% rate
annually for at least the next five years.
2. CITI has positioned itself to offer education and training based on the three dominant software platforms
currently used in the corporate environment; A. Windows and Windows NT, B. The various versions of
UNIX, and C. Linux, the software for the future.
3. IBM, which represents the bridge between the ?New? economy and the ?Old? economy has recently
embraced the open source software system Linux and has determined to make all of its products able to run
that system. Similarly, CITI has made Linux training one of the focal points for its future growth.
4. The information technology/computer service industry is ripe for consolidation with over 240 companies
offering various kinds of training. As one of the senior players in this nascent segment, CITI could
dramatically increase its market share through acquisitions.
5. A disciplined management focus and an electronic infrastructure based on the Internet, coupled with the
waterfall growth of the need for its educational services will provide the opportunity for CITI to become the
player in the market for corporate software and computer education.
6. Finally, the movement of in-service education and training to the Internet and to Intranets, fits with CITIs
new direction. Further, the growing effort of major corporations to outsource these activities, even such
training giants as IBM and Xerox are moving in this direction, provides CITI with an explosive opportunity
to capitalize on its abilities and focus.
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another excerpt
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The burgeoning growth of the Internet, 150 million users worldwide as of the end of 1999, and the explosion in the creative
use of the medium presents the largest opportunity for CITI. They have the ability to multiply their customer base in a short
period of time. We at Lynch Russell believe that the most successful computer education and training companies of the near
future will develop the ability to leverage the universal accessibility and broad content capability of the Internet. They will
create a powerful mix of proven educational content with interactive distribution through and to both the web and corporate
Intranets. We believe that CITI will be one of the significant players in this ?New? computer-training environment.
We are witnessing a revolution in the way that major corporations do business in this country and in the world. Labor
continues to represent the most significant variable cost in a company?s operating budget, and as the Internet provides multiple
methods of B2B opportunities, we will see the disaggregation of the collateral functions of a company. Major corporations
don?t ?own? buildings or most other physical assets anymore, they lease them. Similarly, most functions that are not profit
centers are being farmed out, outsourced to specialists in the various areas, whether it is design, manufacturing, storage, or
Human Resources. CITI has the potential and the ability to become a significant player in the outsourcing of employee
technical training and education, as well as in the training of management and sales personnel. As major corporations rid their
HR departments of training staff, representing a significant cost savings; they will increasingly look for companies such as CITI
to assume the internal educational burden.
CITI has an aggressive plan for acquisitions. With their stock trading at a multiple of book value, a positive cash flow from
all areas of its business, and a fairly clean balance sheet with only slightly more than $2 million in debt, they are ready to
acquire. Further, the lack of large competitors and the substantial number of players in the computer training industry give them
many opportunities. We have compiled a list of 45 companies, nominally competitors of CITI, that, for a variety of reasons
such as high debt, bad management, low stock price, low visibility, family ownership, and others; seem to be ripe for
acquisition. We expect CITI to increase revenues (and profits) beyond what is noted in Table I, Sources of Revenue,
2000-2005. The management team appears to be deep and focussed and probably has the ability to see CITI become a $500
million Company.
Again our revenue estimates, as well as the profit and margin figures noted in Table II, Financial Projections, 2000-2002,
are based on the Company as it now stands. Acquisitions could leverage the opportunity significantly. We believe the stock
price could triple from current levels over the next twelve months. Indeed, given the training industry average multiple of 29
times our estimate of $0.46 for the year ending November 2000, the stock could be north of $12 by the end of the year. We
recommend the aggressive purchase of CITI for risk accounts up to a price of $10 per share.
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I know of no link to the report, but I have a .pdf copy of the 4-page report which I can forward via email. Anybody here?
...Mezz - |
