Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : HS - CHS Electronics -- Ignore unavailable to you. Want to Upgrade?

To: Jatin Kadakia who wrote (1331)	4/24/1999 12:17:00 AM
From: Mr. Jens Tingleff	Respond to of 1494

The full story below. I believe the 4.5 is a good target but in much shorter term. The class actions cannot IMO cause significant damage as I'd expect CHS hold an insurance that will cover, as it is erratic and not criminal behavior that is behind ??? Thoughts ??? BTW: The author needs some update Denmark is not Eastern Europe and CHS indeed present here.!! Full story: "CHS Electronics: Road to Recovery?" By: Steven Patrick April 19, 1999 Current Price: $ 2 15/16 Year-end Target: $4 1/2 Buy up to $3 ¼ "Damn the torpedoes, full speed ahead!" is the only way to really describe the U.S. economy. With the United States enjoying its largest bull market ever in an unprecedented era of moderate growth with low inflation, nothing seems to be able to stop the economy. Because of this, many U.S. based corporations are doing extremely well in this era of "Good Feeling," but what of those who do business outside of the United States? With that in mind, my scanners honed in on a fairly unknown corporation named CHS Electronics (NYSE: HS) . CHS is one of the world's leading independent distributors of microcomputer products with annual revenues of over $8 billion. They distribute a limited range of products to over 120,000 resellers located mainly in Western & Eastern Europe and Latin America. In the past year, the company has been hit with a slow down in sales of the overall microcomputer products industry, economic havoc in Latin America and a slow down in the economies of both Western & Eastern Europe. From these three, the worst was the restatement of earnings and sales due to overstatement of vendor rebates in the past year. This knocked down earnings, plunged the stock, and brought host to a slew of class action lawsuits. To top it off, the company now has over $1 billion in total debt, which is nearly 7 times the amount of its market capitalization, and many company insiders have been sellers in the past 6 months. By now, I'm sure many of you readers are wondering why the hell would I recommend this stock then? Well the reason is this. The stock is extremely "undervalued" based on their balance sheet as a whole and their potential for future earnings growth. If we take an in depth look at their balance sheet, we would see that the company has maintained an annual turnover rate of 12 times a year, in line with the previous 4 years, a period that led the stock to over $30 a share back in the fall of 1997. Since 1994, the company has expanded its presence to over 46 countries now, from only 10 back then. Though it is true that the company's EPS has stalled in the past few quarters, we must look at all this in a new light. Most of the problems were due to problems with the integration of the many acquisitions that were done in the past 2 years. A time where I must admit that the company overdid itself, for revenues went from $1.9 billion in 1996 to $8.5 billion last year or a rise of over 300%. This is another reason why the company currently has a total debt load of over $1 billion, but only $350 million is long-term debt, which gives the company a L-T Debt to Equity ratio of only 0.34. On top of that the company currently has over $175 million in cash and its book value is topping $15 a share. Just by looking at the balance sheet, the company is selling at only 20% of its book value, which is truly amazing to me. The next area that makes me bullish is the potential for EPS growth. With no meltdown in Brazil on the horizon anymore, Latin America is bound to rebound from all this in a dramatic way, with consumers and corporations pushing up their purchases of electronic components, which is great for CHS. In addition, the recent rate cuts in Europe will only spur more growth in their economies, which pushes consumers and corporation to spend on more items, including microcomputers, which once again benefits CHS Electronics. Currently trading at approximately $3 a share, the company is selling for a P/E of only around 4x's 1998 earnings and only 3x's 1999's projected EPS. Though the stock price may make the company seem like a penny-stock, it is extremely liquid with an average daily volume of over 1 million shares and is covered by nearly all the major Wall Street firms. In addition, the company is planning to do a restructuring in which it would layoff around 600 employees or 10% of the workforce and make sure that the company does not make future mistakes on rebates again. The new goals set by management is to reduce operating expenses by $40 million this year and increase cash flow by $50 million this year. To those who are still skeptical, the company was named the #320 largest industrial company in the nation by Fortune. The list is also known as the venerable Fortune 500 list. The company also announced, before the recent restatement problems that Seagate Technologies has named it as one of its key distributors and IBM has granted the company a $250 Million Credit Line. We all know that IBM does not grant companies $250 MM of it's own money unless they feel that the company can pay it back. With all said and done, I recommend CHS Electronics as a BUY with a year-end target of $ 4 ½ or approximately a 50%+ return in 8 months.