This Bull Cuts His Price Target on PCM Inc (PCMI) as Shares Skyrocket 38%

Though Roth Capital's William Gibson dials down his 12-month expectations for PCMI, he still spotlights 32% upside potential for the stock.

PCM Inc (NASDAQ:PCMI) may have delivered a fourth quarter print last night that has one bull frustrated enough to dial down his price target, but shares are popping almost 38% today. Here’s why-

First, notably last year’s class action lawsuit filed by global investor rights law firm Rosen Law Firm on behalf of PCM investors has been fully dismissed. The lawsuit involved cries of damages regarding when the company took over assets of En Pointe Technologies back in April three years ago. Though purchasers of PCM stock had been seeking to recuperate damages under the federal securities laws, the court has now ruled entirely in PCM’s favor.

Secondly, even though the multi-vendor provider of technology solutions suffered a bad miss on quarterly sales, PCMI’s full-year 2018 guide leaves room for investors to be encouraged.

In reaction to the print, Roth Capital analyst William Gibson acknowledges 2017 as rough waters for the consumer player, but finds “2018 holds promise.”

On the heels of earnings, the analyst reiterates a Buy rating on PCMI stock while cutting the price target from $18.50 to $14.75, which implies a 32% upside from current levels. (To watch Gibson’s track record, click here)

For the fourth quarter, the company forfeited $2.6 million, a loss of ($0.22) per share on a 4% year-over-year dip in revenue to $563.4 million. Worthy of note, this is a far cry from the analyst’s $3.9 million profit estimate, calling for $0.30 per share on $585 million in revenue. Public Sector sales took a beating in the quarter, slipping 42% year-over-year to $31.3 million- the culprit for most of PCMI’s weak performance. Commercial sales likewise underwhelmed, rising a mere 1% to $563.4 million.

The company’s operations burned through $36 million of cash for the quarter and $65.5 million for 2017 against a $95.6 million contribution in 2016. Gibson deems an $80.7 million boost in accounts receivable year-over-year to $439.7 million attributable to differences in timing as the predominant reason here; moreover, the analyst pinpoints UK investments coupled with IT expenses correlated to migrating all operations to single SAP system.

By the close of 2017, PCMI came away with $9.1 million in cash and $250 million worth of debt, which marks a $44.4 million sequential jump. Additionally, the company re-purchased 23,000 shares at $10.81 in the fourth quarter following a bigger buy back in the third quarter. For context, PCMI had bought back 819,287 shares at $13.04 per share.

“Working capital should normalize in 2018, in our opinion, enabling a pay down in debt although we expect interest rates to rise,” notes the analyst.

PCMI intends to maximize the investments of 2017 and in the mean time plans to bolster sales productivity while keeping expenses in check. After all, the company wants to sustain prioritization of advanced solutions and services. Consolidated sales of services spiraled up 9% year-over-year to $43 million, taking an 8% slice of sales from one year prior. The analyst anticipates services gains can “outpace” company gains this year.

Moreover, Gibson continues, “We believe the Epoch Universal acquisition aligns with PCM’s strategy to strengthen advanced technology and services. The company outlook for 2018 has been growth in excess of the industry due to its focus on cloud migration, security, managed services, software and other emerging technologies.”

Looking ahead to 2018, the PCMI team guides for 5% in revenue growth, which would outclass the industry, along with gross profit margins aligning with those of last year. The company angles for $2.00 to $2.10 per share in adjusted non-GAAP earnings. PCMI’s leading seven suppliers (Apple, Microsoft, HP, Dell, Cisco, Lenovo, as well as Hewlett-Packard) point to roughly 58% of gross billed revenue.

“In summary, it was a dismal quarter and tough year but PCM has added nearly $1 billion of revenue over the past three years in the transition from its PC Mall days. It is well along the second phase of transformation with a go-to-market strategy around cloud, advanced security and other advanced technology solutions,” Gibson surmises.

According to TipRanks, early initial word looks bullish on PCMI shares. Both analysts polled in the last 12 months rate a Buy on PCMI. The 12-month average price target stands at $17.75, marking a confident 59% upside potential from where the stock is currently trading.

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