Nice article on CPU in the street.com. This is one of my long term holds
Stock Mart: CompUSA
By Eric Moskowitz
Staff Reporter
12/11/98 4:16 PM ET
With PC prices at more affordable levels this holiday season,
computer makers are recording strong sales and their stocks
are surging. These gains have not extended to CompUSA
CPU:NYSE), however, and the nation's leading PC retailer has
had its worst year on record. Its stock has fallen from 35 this
past March to around 13. The stock dropped 1/8 Friday to 13
5/16.
But "CompUSA has more lives than a cat," says Marshall
Bassett, a money manager at Delaware Investment
Advisers.
Bassett, whose firm owns 900,000 shares of CompUSA, got
back into the stock this fall after selling its position late last
year. CEO James Halpin "has already turned this company
around twice in tough business environments," he explains.
"And it's just so cheap right now."
You can say that again. CompUSA shares carry a
price-to-sales ratio of 0.23 -- value investors look for stocks that
trade below 1 -- and their price-to-earnings ratio for the fiscal
year ending in June is 17, well below that of its two main rivals,
Best Buy (BBY:NYSE) and Circuit City (CC:NYSE), which
have P/Es of 26 and 31, respectively.
But the relative cheapness of the stock isn't the only reason to
buy, say bulls. In its fiscal first quarter ended Sept. 26, it earned
14 cents a share (excluding a 5-cent charge), double the 7
cents expected by analysts, according to First Call. Analysts
now see the company earning 22 cents in its December quarter
and 75 cents this fiscal year compared with 70 cents a year
earlier.
To be sure, analysts have reduced this fiscal year's number all
the way from $1.13 in June, but that was due in part to the
company's purchase of Tandy's (TAN:NYSE) troubled retail
unit, Computer City, for $211 million in August. These lower
expectations, says Bassett, should make it easier for
CompUSA to make its numbers going forward.
While this acquisition will still dilute earnings in the December
quarter, Bassett says there will be some upside to the purchase
in the second half of CompUSA's fiscal year. The company
already has closed half of Computer City's more unprofitable
stores in areas where CompUSA already has outlets, in effect
getting rid of competitors. The more profitable locations
remaining will add to earnings in early 1999, says Scot
Ciccarelli, an analyst with Gerard Klauer Mattison.
"If PC average selling prices remain stable and CompUSA can
properly integrate and turn around the remaining Computer City
stores," earnings growth will resume shortly, says Ciccarelli,
who has a buy rating on CompUSA and a price target of 23. His
firm has done no recent underwriting for CompUSA.
Company officials also apparently are betting on a turnaround.
In early September, 20 insiders bought more than 500,000
shares of stock. Halpin, the CEO, bought more than 200,000
shares at prices ranging from 13 to 16, according to data
tracker Baseline.
Halpin has a proven track record at CompUSA. He instituted a
number of operational changes in 1993 when he was brought in
as president and operating chief to bolster the company's stock,
which had slumped from 9 to less than 2 on a postsplit basis.
When Halpin became CEO in 1995, the stock price took off:
from less than 10 to 27 by the fall of 1996. "He instituted our
direct PC program [over the Internet] and restructured the
company from top to bottom," says a CompUSA
spokeswoman. Halpin wasn't available for comment.
All these positive indicators don't mean there aren't any risks in
this underperforming company, which has more than 200 stores
selling everything from PCs to software titles to video games.
Harry Katica, an analyst with Prudential Securities, has a
hold rating on the stock because it's increasingly under assault
from direct PC sellers such as Dell (DELL:Nasdaq) and
Gateway (GTW:NYSE). "We believe investors will choose to
wait until more concrete evidence is available in support of an
upturn in earnings," Katica told clients last month. Prudential
hasn't done underwriting for CompUSA.
If investors wait too long, however, they may miss a stock
run-up before the March quarter. Delaware Investment's Bassett
says that once the company's year-over-year comparables
improve, it will be quite easy to top analyst estimates.
"CompUSA's comparables should get much better by the time
the company gets to its March quarter," he asserts. CompUSA
earned 27 cents in its March quarter and lost 19 cents in its
June quarter last year.
So CompUSA stock most likely will be on sale for awhile, but it
won't be forever. |
