Ingram Micro, Inc.'s (IM) fourth quarter sales and earnings were ahead of our estimate and the consensus estimates. Even so, management's guidance for the first quarter was well below the market expectations. Despite the company's soft guidance, we think that Ingram Micro will still be able to deliver solid execution and operating leverage over the long-term. Moreover, demand for information technology products should remain stable over the long term.
However, we believe these long-term positives are offset by near-term issues such as slowing economic growth in North America and Europe, industry-wide pricing pressures and fewer cost-cutting opportunities. As a result, we are reducing our estimates for 2008. Ingram Micro shares trade at 10x our 2008 EPS estimate and 9.4x our 2009 EPS estimate.
While this valuation may appear cheap, we think it represents a fair value, relative to its peers and long-term earnings growth rate. As a result, we think shares of IM will track the performance of the S&P 500 over the next six months. We maintain our Hold rating on the stock. Our target price is $18, or about 10x our 2008 EPS estimate.
Read the full analyst report on IM.
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