BRIGHTPOINT (NASDAQ:CELL) - AN UNDERVALUED GEM
The market has beaten up Brightpoint (NASDAQ: CELL). It has fallen 30-35% to $16-18.50 on the Asian crisis news and has very good potential for a recovery. Brightpoint has solid fundamentals, high integrity and one the best management staffs in the telecommunications industry. They have many new large clients and have been growing like wildfire. Of the twelve analysts following Brightpoint, several have recently upgraded their recommendations to a STRONG BUY. Wall Street average recommendation is now 1.5 from 1.7 in September. Analysts have revised FY98 earnings estimates in the past 60 days from $0.60/share to $0.675/share. Brightpoint represents an excellent discount value at its current level, down from its recent high in October of $24.50 (split adjusted). Analysts have announced short-term price targets of $20-24 (split adjusted), and medium-to-long term price targets of $30-40. The big news which is rumored to come any day could trigger a sharp move up to its target.
Brightpoint is a leading provider of distribution and value-added logistics services to the wireless communications industry. They facilitate the effective and efficient distribution of wireless handsets and related accessories from leading manufacturers to network operators, agents, resellers, dealers and retailers in the wireless communications market.
Brightpoint received or extended deals with ten (10) new large clients over the past few months, including Nextel, Siemens, Samsung, Nokia, Ericsson, Telstra and several others. The big news, however, has not been announced yet. There are several rumors that the news will be announced within days. The big news is the Iridium contract, which will transform Brightpoint from an $800 million company to a multi-billion ($2+ billion) company in less than 5 years. That is major growth. Iridium is the future of telecommunications. It is a global wireless telecommunications satellite network system designed by Motorola that has been under development for ten (10) years. It goes on-line in less than a year!!! This is a good opportunity to get in at the ground floor of the future of global telecommunications at a dirt-cheap price. The Asian crisis has presented an opportunity to purchase this stock at a discount with above average upside potential.
WHY CONSIDER BRIGHTPOINT
A recent tendency has been to stand clear of Asia related companies. The above facts about solid fundamentals, analyst's recommendations, no insider selling, and good management were enough to get me interested in Brightpoint, but I needed something more to make a long-to-medium term investment. I needed a rubber stamp that said continued growth, growth, growth and more growth at a rate of over 57% per year that will outweigh any potential economic slowdown in Asia. Brightpoint received 10 new large clients over the past 5 months, including Nextel, Siemens, Samsung and so on (see list below). That equates to sustained growth, but I still needed to see a HOME RUN - the rubber stamp. After several weeks of research/due diligence, I discovered the magnitude of IRIDIUM - which is the HOME RUN I was looking for. Iridium is what finally compelled me to dispel Asian fears in faith of excellent upside potential. Iridium is the de facto future of global telecommunications. Many know that Brightpoint and Cellstar have been engaged in a skirmish to provide distribution and other services for Iridium. But not many understand this contract's magnitude in the industry. There are strong rumors that Brightpoint has in fact finalized the Iridium contract, and that Brightpoint will be making an announcement any day now, perhaps this week.
WHAT IS IRIDIUM AND WHAT IS IT WORTH?
Before answering that question, I will list the new clients or newly extended clients with whom Brightpoint has recently closed contracts to demonstrate that the company has sustained significant growth recently with many large players excluding Iridium. Iridium is the frosting on the cake. Well, actually, Iridium is more like another cake in and of itself, but more about Iridium later.
Nextel, Inc -08/25/97 - Product packaging, assembly and fulfillment services (NEW GROWTH).
Siemens Wireless Terminals - 08/27/97- Distribution of PCS-1900 handset accessories (NEW GROWTH)
Samsung Telecommunications America -09/08/97- Sale and distribution of wireless handsets in North America (NEW GROWTH)
Iridium LLC - 09/10/97 - Negotiations commence. Brightpoint announces that Iridium may select Brightpoint as its global prime vendor for product distribution. Under the arrangement, Brightpoint would be responsible for implementing a global product distribution program for Iridium's global wireless communication network. No definitive agreement reached as of 9/10/97. Before this announcement, the stock traded at around $21. After the announcement, the stock moved quickly up to $23. (POTENTIALLY HUGE NEW GROWTH).
RAM Mobile Data - 09/30/97 - Provide integrated order fulfillment for RAM's new RAMfirst Interactive Paging Service(SM) (NEW GROWTH)
Globe -11/05/97- Fulfillment and distribution services (NEW GROWTH)
Digifone -11/06/97- Supply fulfillment and distribution services and wireless handsets and accessories (NEW GROWTH)
Nokia Mobile phones -11/10/97 - Sales and distribution of wireless communication equipment (NEW GROWTH)
Ericsson -11/10/97 - Contract extended to 12/99 - sole authorized distributor and logistics provider for cellular phones in secondary markets with indirect customers and will provide all fulfillment demands (CONTINUED/SUSTAINED GROWTH)
Isla Communications Co., Inc. -11/19/97 Installing and managing "Prepaid" system, sourcing handsets and accessories, and providing complete inventory management and fulfillment services (NEW GROWTH)
Telstra Corporation Limited -11/20/97 - Value-added logistics and distribution services of prepaid SIM cards and recharge airtime cards (NEW GROWTH)
Back to WHAT IS IRIDIUM AND WHAT IS IT WORTH?
On 9/11/97, Brightpoint announced that they were in negotiations with Iridium for one of the largest contracts that the wireless telecommunications industry has ever seen. Before this announcement the stock traded around $21/share? shortly after the announcement? it pushed up to $23. The announcement made no assurances that the contract was a done deal? With CELL now trading in the $16-18.50 range, you can feel safe that Iridium is not built into the stock price at this point?. Especially when you consider what the contract is worth.
When, not if, Brightpoint announces that they got the contract, this will be a significant event in Brightpoint history for two reasons: (1) Financially speaking, this contract alone will transform Brightpoint from an $800 million company into a multi-billion ($2+ billion) company within 3-5 years. And (2) it represents a significant step forward in establishing Motorola as a long-term client, which alone has the potential to generate incremental $$$ in the hundreds of millions?. The contract is for Iridium LLC, a company 25% owned by Motorola and in good part founded by Motorola. Iridium LLC funds the development of the Iridium system. The Iridium system is a mammoth global wireless telecommunications system that Motorola and a consortium of other companies (through Iridium LLC) have been working on for over a decade. Iridium LLC has been working with Motorola and other companies since 1987 to develop this vast telecommunications satellite network and it will go online for the first time in less than 1 year (Sept 98). The system will consist of a gigantic satellite network all over the globe. There will be 66 satellites all over the globe in total. 39 of the 66 satellites have already been launched and are in place today.
When Brightpoint announces that they did in fact receive the Iridium contract, perhaps on this week, you can count on some serious upward revisions to earnings forecasts for FY98, FY99 and beyond. To put things in perspective, the contracts that Brightpoint has with Ericsson, Nextel, Nokia, Samsung and so on are BIG. Iridium LLC is MAMOUTH. Motorola has a large direct interest in Iridium.
BUT WHAT ABOUT THE ASIAN CRISIS?
There is no denying that Brightpoint has a large interest in the Asia/Pacific region. Understandably any company with a large interest in Asia has been discounted?. The key in exploiting such a situation is to find fundamentally solid companies that have been over-discounted that have excellent continued growth prospects in an industry that will remain strong, despite an economic slowdown in Asia. Historically economic slowdowns have less of an impact on vital sectors such as the telecommunications. Why? No matter how bad things get, people still need to communicate. In Asia, where telephone lines in rural areas are uncommon, wireless communication is the 0perfect solution. Brightpoint operates exclusively in the wireless telecommunications industry providing product distribution, logistics and fulfillment services. Wireless telecommunication is the de facto future of telecommunication - it will grow much larger before it bursts regardless of economic conditions. Our entire world is going global - computers, trade, companies etc. - the next natural transition from domestic wireless telecommunication is to global wireless communication. Iridium is that transition - you have an opportunity to get in at the ground floor.
WHAT EXACTLY IS IRIDIUM?
iridium.com
Iridium LLC (IRIDF) is an international consortium of leading telecommunications and industrial companies funding the development of the IRIDIUM system. The IRIDIUM system is a satellite-based, wireless personal communications network designed to permit any type of telephone transmission -- voice, data, fax, or paging -- to reach its destination anywhere on earth. The IRIDIUM constellation will consist
of 66 interconnected satellites orbiting 420 nautical miles above the earth. The system will simplify communications for business professionals, travelers, residents of rural or undeveloped areas, disaster relief teams, and other users who need the features and convenience of a wireless handheld phone for worldwide use.
The system is being financed by a private international consortium of telecommunications and industrial companies and is expected to begin operation in 1998. Motorola is the creator of the original system concept and its prime contractor.
The IRIDIUM system was conceived in 1987 by engineers at Motorola's Satellite Communications Division. With the goal of providing truly global coverage, engineers determined that the system would require a constellation of low earth orbiting (LEO) satellites. The satellites would be relatively small and simply constructed so they could be built, launched and replaced economically.
Market analyses conducted by Motorola determined the requirements for system capacity and financing. A strong potential market was identified for a system that would provide high quality service at reasonable rates.
HOW DOES MOTOROLA VIEW THE WORK THAT BRIGHTPOINT DOES?
In a conference that Motorola speaks at regarding the future of the telecommunication's industry, Motorola's first conference session is "ME08.1 Supply Chain Modeling: Its Applications in Supply Chain Design, Evaluation & Deployment". In the conference, Motorola centers its discussion on the importance of ? "In today's competitive environment, the battle ground has moved from the factory floor to the area of logistics. Good quality and competitive price are being taken for granted by customers. Speedy and reliable delivery of the product or service to the hands of customers have become more and more important. A generic model was created based on queueing and inventory control theory..."
informs.org
What this shows is that Motorola knows that logistics are imperative to success, and they are committed to outsourcing this work - very good news for the company that use for this work - namely Brightpoint. They also realize that is it imperative to utilize companies like Brightpoint for logistics, distribution and product services. Basically, Motorola knows its smart to farm out cellular product distribution, inventory and logistic services. By virtue of the fact that Iridium LLC, 25% owned by Motorola, plan to farm this work out to Brightpoint, it is clear that Motorola has an extremely high degree of confidence in Brightpoint's future over Brightpoint's competitor's future.
WHAT ARE RECENT ANALYSTS SAYING?
[NOTE: Figures below do not reflect stock split on 11/21 so divide the per share numbers by 2].
1 --- "The first, Brightpoint Inc., has increased sales every year since the company was founded in 1989. In the year ended 1996, sales were $590 million, which means that the company has compunded its sales growth at an average rate of 57% per year since 1992. Schlang, by the way, prefers to look at sales rather than earnings, since the earnings number is easily manipulated, while "a dollar of sales is a dollar of sales - those figures don't lie! ?. " (Worth Magazine, 7/28)
2 - "Genesis Raises Rating on Brightpoint to Strong Buy. PR Newswire, Wednesday, October 29, 1997 at 13:29. SAN FRANCISCO, Oct. 29 /PRNewswire/ -- Genesis Merchant Group Securities raised its rating on Brightpoint, Inc. (NASDAQ:CELL) to Strong Buy from Hold. Genesis analyst Charles Thomas stated, "The shares now trade at 22 times our $1.30 EPS estimate for 1998. Given Brightpoint's consistent history of meeting or beating investor expectations, a multiple closer to the company's sustainable earnings growth rate of 30% to 35% is more appropriate." The shares have traded-off by roughly 35% since Genesis initiated coverage on October 6th with a Hold recommendation. This weakness is attributed to investor concern with Brightpoint's exposure in the Asia/Pacific region and Thomas considers this a natural reaction, given the stock's meteoric rise. Thomas expects the shares to trade between 30 to 35 times Genesis' $1.30 EPS estimate for 1998. Genesis price target is now in the $40 to $45 range. SOURCE Genesis Merchant Group Securities CONTACT: Analyst Charles Thomas of Genesis Merchant Group Securities, 415-677-1500/ /Web site: sternco.com /"
3 - "Brightpoint Gets Initial 'Buy' Rating From SoundView Financial Dow Jones Online News, Monday, November 03, 1997 at 11:45 NEW YORK -(Dow Jones)- SoundView Financial Group Inc. initiated coverage of Brightpoint Inc. (CELL) with a "buy" rating. In a research note, SoundView estimated Brightpoint will earn 94 cents a share in 1997 and $1.35 a share in 1998."
THE END
NO --- NOT THE END, JUST THE BEGINNING!
Many of the above statements represent my opinions and are not intended as investment advice. Please form your own opinions and invest at your own risk (I had to say that).
A private investor, not a broker or analyst, writes this message. I hold shares of CELL and for obvious reasons, I am long on Brightpoint. What it basically boils down to on CELL is this. Do you look to an extremely promising future for Brightpoint? Or do you beat them up again? You make the call. |
