HS post on Marketgems thread:
To: Jerry S. (24580 )
From: Diamond H Saturday, Feb 6 1999 1:02AM ET
Reply # of 24615
HS is an outstanding value pick. Here are some fundies for those of you who may be interested. Earnings come out the week of the 22nd. I'm expecting the usual runup.
<H>
12164 of 12171
Company Brief: Distribution - Technology Kristi Thiese ? x2502
January 26, 1999 (727) 573-3800
Ken Avalos, Research Assoc.
CHS ELECTRONICS
(NYSE-HS) — RATING: BUY (1)
Suitability: Aggressive Growth
Current Price (1/25/99): $15.88
CHS Electronics, based in Miami, Florida, is a leading international
distributor of microcomputers,
storage and computer peripheral products, networking equipment, and
software.
Recent market volatility, concerns about Latin American economic
growth, and earnings
disappointments at U.S.-based PC distributors have combined to keep the
price of CHS Electronics
shares in check in recent weeks, providing investors with a compelling
entry point. Based on our
confidence in Q4 and 1999 estimates, combined with an attractive P/E
valuation of only 7.6x our
1999 EPS estimate, we strongly reiterate our BUY (1) rating on the
shares of CHS Electronics at
current levels.
Comfortable with our 4Q98 expectations, a penny ahead of consensus
We continue to be very comfortable with our current EPS estimates for
CHS Electronics. For the
company's 4Q98 ended December, we have projected sales of $2.78
billion, up from $1.83 billion
in 4Q97. The company recently issued a press release indicating that
December sales crossed the
$1.0 billion mark, a historic event for the company and evidence for us
that CHS is likely to exceed
our revenue expectations in the quarter. We now expect that CHS's 4Q98
revenues will be in excess
of $2.8 billion, with the sales growth driven primarily by strong
Western European demand for
technology products.
The strong expected revenues in the quarter increase our confidence
that CHS can report 4Q EPS in
the $0.67 to $0.68 range, exceeding current Street consensus
expectations of $0.66 per share. Our
published 4Q98 estimate calls for $0.67 in earnings per share, compared
to $0.45 in 4Q97.
4Q98 strength from Western Europe, Mass Storage products
Our comfort with current EPS estimates is strengthened by continued
indications of strong Western
European demand for IT products, including mass storage products. At
66% of 3Q98 revenues,
Western Europe represents CHS Electronics' largest geographic market.
Recent EPS releases from
major technology manufacturers including Intel (NASDAQ-INTC), IBM
(NYSE-IBM), and
Seagate (NYSE-SEG) indicate a very strong Q4 Western European market
for technology products.
Intel's sales to Europe were up 16.9% in the December quarter, while
IBM's December quarter
sales growth to Europe of 9% was more than double the corporate average
of 4% growth. Seagate
indicated Western Europe moved from 35% of September quarter sales to
39% of December quarter
sales, for a 29% sequential increase in sales to the region.
IBM and Seagate both noted strong sales of hard drives and other mass
storage items. IBM
highlighted its HDD sales as a positive in the quarter, with unit
growth in excess of 50%. Seagate's
hard drive revenues were up 16% year-over-year, including 24% growth in
desktop drives,
Seagate's fastest-growth item in the quarter. In particular, Seagate
commented on the strength in
Western European demand for drives, which the company expects will
continue over the next six
months.
Mass storage products represent nearly 30% of CHS's product mix, and we
expect that the
company's gross margins will continue to benefit from the strong demand
and continued allocation
of hard drives in the fourth quarter. Gross margins were 7.40% in 3Q98,
during which time the
company also experienced mass storage allocation. We have modeled 4Q98
gross profit margins for
CHS of 7.27% vs. 7.04% in the fourth quarter of 1997.
Exposure to Latin America
Sales to Latin American markets represented 18.5% of 3Q98 revenues for
the company. Sales to
Brazil were approximately 3.5% of company sales in 3Q98. Our relatively
lower growth
expectations for Latin America, combined with the ongoing strength of
the European market, should
bring Latin America down to less than 15% of 4Q98 sales. We remain
cautious about growth in
demand for technology products in Latin America during 1999. Our
current EPS estimates assume
internal growth in CHS's Latin American sales of 7% in 1999, down from
internal growth rates of
20% to 25% experienced over the last 18 months.
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