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Some of you may not know but I attended high school at a small private school in Boston. This wasn’t an average school. It was a very rigorous academic school. We used to get so much homework that every night it felt like I was sliding down a banister of razor blades and landing on a cactus soaked in alcohol. I used to be so happy to go to the dentist and get my teeth drilled because at least I didn’t have to do homework. On top of that, the school was extremely competitive and it was difficult to get good grades.
One of the most notorious teachers was my science teacher. We used to get pop quizzes 2 minutes before it was time to go home from school. He would make us take out a piece of Block #1 and then give us questions like calculate how do you fly a rocket to Mars using only a slide rule. We would get grades of A, B, C, D, E and F. Forget about getting A’s and B’s. A good grade was a C. Now if you were failing you’d get an F, but if you were not quite failing, you’d get an E. Of course these grades would be posted on the bulletin board in homeroom, so everyone would know who got an E.
I distinctly remember one quiz coming back and it was graded an “E+”. Now just what the hell is an “E+” anyway? Does that mean I did really awful but a little bit above awful….thus getting an “E+”???
All of these bad memories are difficult to recall, but an E+ just might not be the worst thing in the world. In fact, today I bought stock in a company called ePlus Inc (PLUS). I paid 83.68 per share. I will sell this stock in 4 to 6 weeks at 96.41.
Here’s why I like ePlus:
For starters, it’s a darn good looking chart.
The stock is up 47% over the last 12 months yet its trailing PE is only 14. This is a tech stock with a VERY low PE.
ePlus inc., through its subsidiaries, provides information technology (IT) products and services, flexible leasing and financing solutions, and enterprise supply management in the United States. It operates through two segments: Technology and Financing. The Technology segment is engaged in the direct marketing and resale of various IT products, including hardware, software, software assurance, and third party services and maintenance; and offers advanced professional and managed services, such as data center solutions, network services, security and wireless solution services, managed services, staff augmentation services, server and desktop support, professional services, business intelligence and data management services, and project management services. This segment offers OneSource proprietary software products, including order-entry and order-management software, procurement, asset management that encompasses vendor maintenance management, document management and distribution software, and electronic catalog content management software and services. The Financing segment provides direct financing, sales-type and operating leases, and notes receivables; and underwrites and manages IT equipment and assets. Its financing operations include sales, pricing, credit, contracts, accounting, risk management, and asset management. This segment primarily finances IT equipment comprising accessories and software, communication-related equipment, and medical equipment. The company serves commercial entities, state and local governments, and government contractors. ePlus inc. was founded in 1990 and is headquartered in Herndon, Virginia.
That’s kind of a long way of saying that PLUS is a leading provider of technology solutions focused on cloud, data center, security, networking and collaboration solutions. The company's software helps firms optimize their IT infrastructure and supply chain processes. This isn’t some ham and egger software company. Their FY14 revenue was $1.1 billion. Revenue growth over the last 5 years is 18% CAGR. FY14 EPS is $4.37 per share, growing at a rate of 31% CAGR FY10-FY14.
The IT market needs have become increasingly complex. This industry is fragmented, and ePlus being the market behemoth is a market aggregator. This allows them to expand their customer base at will and build out a national footprint through acquisitions. Customers are increasingly seeking partners capable of providing integrated hardware, software and service solutions. The pace of IT change is killing companies who have been trying to do everything in house. It makes more and more sense to let the professionals handle it. PLUS offers an end to end suite of customized solutions. They are expanding their services offering, which provides much higher gross margins than their average existing portfolio of business.
The expectations for IT spending growth in the US is projected to be 4% annually. If you’re one of the leading suppliers, that means you can expect multiples of this growth. ePlus is all over this as they have a broad and diverse customer base (over 2800 existing customers with only one customer having 10% of their total revenues). Their vendor relationships and certifications give them flexibility to approach IT challenges from a variety of different angles, and their highly trained technical staff will enable them to provide clients with increasingly complex solutions to their IT problems.
ANAL-yst estimates for PLUS have moved higher in the past few weeks, meaning that analyst sentiment is moving in the right way. On Feb 05, the company announced strong third quarter earnings reports.
Quarterly Highlights:
· Revenues increase 14.6% to $306.2 million
· Consolidated gross margin of 21.4%; gross margin on sales of products and services expands 50 basis points to 19.4%
· Earnings per diluted per share of $2.13; non-GAAP earnings per diluted share was $1.64, up 24.2% from $1.32 per share
· Results continue to benefit from larger customer base and growing services business
For the third quarter ended December 31, 2014:
· Consolidated revenues grew 14.6% to $306.2 million, from $267.2 million in the third quarter of fiscal 2014.
· Technology segment revenues were up 15.5% to $297.8 million, from $257.9 million in the third quarter of fiscal 2014.
· Financing segment revenues were $8.4 million, compared with $9.2 million in the third quarter of fiscal 2014 primarily due to lower transactional gains in the current quarter.
· Consolidated operating income was up 13.9% to $20.6 million, from $18.1 million a year earlier. Operating margin was 6.7%, down from 6.8% in the third quarter of fiscal 2014.
For the nine months ended December 31, 2014:
· Consolidated revenues were up 9.8% to $876.0 million, compared with $797.6 million in the first nine months of fiscal 2014.
· Technology segment revenues were up 10.4% to $849.6 million, from $769.5 million in the first nine months of fiscal 2014.
· Financing segment revenues were $26.4 million compared with $28.1 million in the first nine months of fiscal 2014.
· Consolidated operating income was up 20.7% to $55.6 million, from $46.1 million in the first nine months of fiscal 2014. Operating margin was 6.4%, compared with 5.8% in the first nine months of fiscal 2014.
On November 3, 2014, ePlus announced that it had been named Cisco's 2014 Advanced Collaboration Partner of the Year for Contact Center Express in the United States. On November 4, 2014, ePlus announced that ePlus Technology received six distinguished awards, including National FlexPod Partner of the Year, during NetApp's Insight Conference. ePlus was awarded:
· National FlexPod Partner of the Year
· East Partner of the Year
· SLED East Impact Partner of the Year (Large Partner)
· FlexPod Premium Partner Recognitions
· National Impact Award -- USPS
· National Accelerator Award
· Outstanding Contribution by a NetApp Team Tech Partner.
PLUS is a very attractive investment in terms of current Ev/Ebitda and P/S levels. Trading on a P/S of only 0.5x, ePlus is ranked very highly vs comparable stocks in its industry. EPlus trades on a P/B of 2.2, which is also attractive for a “tech company”. ePlus has an ROE of 17%, which ranks above the 3rd decile across the Russell 3,000.
ePlus has been making new highs for a year and a half, and is riding a six-year growth streak that has boosted its share price more than sevenfold. Everyone can’t be stupid. The company isn’t. They’ve been repurchasing shares. The CEO owns about 10% of the total shares outstanding and a few of the other executive officers also own a lot.
In terms of the market, they haven't seen any decrease in terms of the IT demand. They added headcount year-over-year. They are seeing uptick both in their customer base and in the market as it relates to security in some of these services that they can provide to their customers. They believe they'll continue to outpace the market in terms of as it relates to growth.
What does this mean when it comes to earnings? ANAL-ysts have projected 2016 revenues of $1.24 billion pointing to $6.04/share. $$$MR. MARKET$$$ sees revenues of $1.3 billion, but since they are targeting higher margin business, you’ll see earnings at $6.93 per share.
If you take $6.93 and multiply it by the PE of 14, you get $6.93 x 14 = $97.02/share, which is higher than my price target.
Actually, the CEO Phillip G. Norton, who never acted on the Honeymooners, probably said it better than I could:
"This was a quarter of strong performance for ePlus. We achieved substantial revenue growth thanks to growing client demand for customized and complex IT solutions in the key areas of security, storage, infrastructure and cloud-based options," said Phillip G. Norton, CEO, chairman and president of ePlus. "Profitability continued to benefit from our increased scale and the growing contribution from our higher margin services business, resulting in an increase in diluted earnings per share that significantly outpaced revenue growth.
"Our technology segment posted strong year-over-year comparisons, with operating income growth of 18.3% outpacing 15.5% revenue growth, while we continued to invest in building managed services solutions to support future growth. Our financing segment's third quarter results were lower on a year-over-year basis due to lower transactional gains, but achieved an operating margin of 30.2%, additive to our consolidated results.
"For the nine months ended December 31, 2014, our revenues were up 9.8%, consolidated gross margin expanded 90 basis points to 21.2%, operating income advanced 20.7% and non-GAAP diluted earnings per share was $4.38, up from diluted earnings per share of $3.34 in the comparable period. This performance reflects our ability to add value in the planning, development, procurement and management of IT systems and solutions across a growing and diversified customer base."
"Based upon industry analyst estimates, we believe that the rate of growth ePlus achieved for the first nine months of our fiscal 2015 was significantly greater than that of domestic IT spending, showing that we are well positioned with the most in-demand IT solutions. Our year-to-date revenue growth reflects increased penetration of existing accounts as well as new customers we gained organically and through the acquisition of Evolve Technology Group in August 2014," Mr. Norton stated.
"We continue to focus on high growth segments in the IT market, and driving recurring revenues through expansion of our managed services offerings. We believe that ePlus is positioned to continue to outperform industry growth rates and to achieve year-over-year growth in services revenues. We continue to evaluate acquisition opportunities to gain new customers, solutions capabilities, and sales and engineering resources."
“We think this performance is particularly noteworthy as it was achieved while we continued to make investments in people and technology in order to support future growth. Our results today support the strategy that we have discussed with investors and that is understood and rewarded throughout our organization, namely that we expect our market share gains to come from our focus on the fastest-growing segments in the market, including data center infrastructure, networking, security, cloud and collaboration. And we have built a solid professional services capability to provide customers with complex IT solutions around these needs. This is differentiating ePlus in the marketplace and has enabled us to report revenue growth of almost 10% for the 9 months ended December 31, 2014, well ahead of the industry forecast that we have seen for domestic IT spending on both product and services.”
“In summary, we are very pleased by our performance in the first 9 months of our fiscal 2015. We believe that ePlus is moving towards fiscal 2015 with positive momentum, and we plan to continue to invest in a measured way in technology and people and make sure that we anticipate and address customers' needs. We are specialized in IT areas that are growing faster than overall IT spending. Our technical expertise enables us to provide customized solutions in an increasingly complex IT environment. And we are continuing to focus on growth organically and through acquisitions. We have highly focused go-to-market and incentive plans for our sales people to sell wider and deeper within our own customer base and capture market share for competitors as well as the resources to make additional acquisitions that add to our capabilities and expand our geographic reach. All of this supports our confidence in ePlus' future growth prospects”.
Well that’s the story for ePlus and there is nothing that Dick Whitney or Gus Rehder (two great men by the way) can do about it. Even though they gave me bad grades in high school, I’m getting an A+ in the stock market, because I AM HUGE! I’ll take this E+ to the bank!
$$$MR. MARKET$$$
www.mrmarketishuge.com
One of the most notorious teachers was my science teacher. We used to get pop quizzes 2 minutes before it was time to go home from school. He would make us take out a piece of Block #1 and then give us questions like calculate how do you fly a rocket to Mars using only a slide rule. We would get grades of A, B, C, D, E and F. Forget about getting A’s and B’s. A good grade was a C. Now if you were failing you’d get an F, but if you were not quite failing, you’d get an E. Of course these grades would be posted on the bulletin board in homeroom, so everyone would know who got an E.
I distinctly remember one quiz coming back and it was graded an “E+”. Now just what the hell is an “E+” anyway? Does that mean I did really awful but a little bit above awful….thus getting an “E+”???
All of these bad memories are difficult to recall, but an E+ just might not be the worst thing in the world. In fact, today I bought stock in a company called ePlus Inc (PLUS). I paid 83.68 per share. I will sell this stock in 4 to 6 weeks at 96.41.
Here’s why I like ePlus:
For starters, it’s a darn good looking chart.
The stock is up 47% over the last 12 months yet its trailing PE is only 14. This is a tech stock with a VERY low PE.
ePlus inc., through its subsidiaries, provides information technology (IT) products and services, flexible leasing and financing solutions, and enterprise supply management in the United States. It operates through two segments: Technology and Financing. The Technology segment is engaged in the direct marketing and resale of various IT products, including hardware, software, software assurance, and third party services and maintenance; and offers advanced professional and managed services, such as data center solutions, network services, security and wireless solution services, managed services, staff augmentation services, server and desktop support, professional services, business intelligence and data management services, and project management services. This segment offers OneSource proprietary software products, including order-entry and order-management software, procurement, asset management that encompasses vendor maintenance management, document management and distribution software, and electronic catalog content management software and services. The Financing segment provides direct financing, sales-type and operating leases, and notes receivables; and underwrites and manages IT equipment and assets. Its financing operations include sales, pricing, credit, contracts, accounting, risk management, and asset management. This segment primarily finances IT equipment comprising accessories and software, communication-related equipment, and medical equipment. The company serves commercial entities, state and local governments, and government contractors. ePlus inc. was founded in 1990 and is headquartered in Herndon, Virginia.
That’s kind of a long way of saying that PLUS is a leading provider of technology solutions focused on cloud, data center, security, networking and collaboration solutions. The company's software helps firms optimize their IT infrastructure and supply chain processes. This isn’t some ham and egger software company. Their FY14 revenue was $1.1 billion. Revenue growth over the last 5 years is 18% CAGR. FY14 EPS is $4.37 per share, growing at a rate of 31% CAGR FY10-FY14.
The IT market needs have become increasingly complex. This industry is fragmented, and ePlus being the market behemoth is a market aggregator. This allows them to expand their customer base at will and build out a national footprint through acquisitions. Customers are increasingly seeking partners capable of providing integrated hardware, software and service solutions. The pace of IT change is killing companies who have been trying to do everything in house. It makes more and more sense to let the professionals handle it. PLUS offers an end to end suite of customized solutions. They are expanding their services offering, which provides much higher gross margins than their average existing portfolio of business.
The expectations for IT spending growth in the US is projected to be 4% annually. If you’re one of the leading suppliers, that means you can expect multiples of this growth. ePlus is all over this as they have a broad and diverse customer base (over 2800 existing customers with only one customer having 10% of their total revenues). Their vendor relationships and certifications give them flexibility to approach IT challenges from a variety of different angles, and their highly trained technical staff will enable them to provide clients with increasingly complex solutions to their IT problems.
ANAL-yst estimates for PLUS have moved higher in the past few weeks, meaning that analyst sentiment is moving in the right way. On Feb 05, the company announced strong third quarter earnings reports.
Quarterly Highlights:
· Revenues increase 14.6% to $306.2 million
· Consolidated gross margin of 21.4%; gross margin on sales of products and services expands 50 basis points to 19.4%
· Earnings per diluted per share of $2.13; non-GAAP earnings per diluted share was $1.64, up 24.2% from $1.32 per share
· Results continue to benefit from larger customer base and growing services business
For the third quarter ended December 31, 2014:
· Consolidated revenues grew 14.6% to $306.2 million, from $267.2 million in the third quarter of fiscal 2014.
· Technology segment revenues were up 15.5% to $297.8 million, from $257.9 million in the third quarter of fiscal 2014.
· Financing segment revenues were $8.4 million, compared with $9.2 million in the third quarter of fiscal 2014 primarily due to lower transactional gains in the current quarter.
· Consolidated operating income was up 13.9% to $20.6 million, from $18.1 million a year earlier. Operating margin was 6.7%, down from 6.8% in the third quarter of fiscal 2014.
For the nine months ended December 31, 2014:
· Consolidated revenues were up 9.8% to $876.0 million, compared with $797.6 million in the first nine months of fiscal 2014.
· Technology segment revenues were up 10.4% to $849.6 million, from $769.5 million in the first nine months of fiscal 2014.
· Financing segment revenues were $26.4 million compared with $28.1 million in the first nine months of fiscal 2014.
· Consolidated operating income was up 20.7% to $55.6 million, from $46.1 million in the first nine months of fiscal 2014. Operating margin was 6.4%, compared with 5.8% in the first nine months of fiscal 2014.
On November 3, 2014, ePlus announced that it had been named Cisco's 2014 Advanced Collaboration Partner of the Year for Contact Center Express in the United States. On November 4, 2014, ePlus announced that ePlus Technology received six distinguished awards, including National FlexPod Partner of the Year, during NetApp's Insight Conference. ePlus was awarded:
· National FlexPod Partner of the Year
· East Partner of the Year
· SLED East Impact Partner of the Year (Large Partner)
· FlexPod Premium Partner Recognitions
· National Impact Award -- USPS
· National Accelerator Award
· Outstanding Contribution by a NetApp Team Tech Partner.
PLUS is a very attractive investment in terms of current Ev/Ebitda and P/S levels. Trading on a P/S of only 0.5x, ePlus is ranked very highly vs comparable stocks in its industry. EPlus trades on a P/B of 2.2, which is also attractive for a “tech company”. ePlus has an ROE of 17%, which ranks above the 3rd decile across the Russell 3,000.
ePlus has been making new highs for a year and a half, and is riding a six-year growth streak that has boosted its share price more than sevenfold. Everyone can’t be stupid. The company isn’t. They’ve been repurchasing shares. The CEO owns about 10% of the total shares outstanding and a few of the other executive officers also own a lot.
In terms of the market, they haven't seen any decrease in terms of the IT demand. They added headcount year-over-year. They are seeing uptick both in their customer base and in the market as it relates to security in some of these services that they can provide to their customers. They believe they'll continue to outpace the market in terms of as it relates to growth.
What does this mean when it comes to earnings? ANAL-ysts have projected 2016 revenues of $1.24 billion pointing to $6.04/share. $$$MR. MARKET$$$ sees revenues of $1.3 billion, but since they are targeting higher margin business, you’ll see earnings at $6.93 per share.
If you take $6.93 and multiply it by the PE of 14, you get $6.93 x 14 = $97.02/share, which is higher than my price target.
Actually, the CEO Phillip G. Norton, who never acted on the Honeymooners, probably said it better than I could:
"This was a quarter of strong performance for ePlus. We achieved substantial revenue growth thanks to growing client demand for customized and complex IT solutions in the key areas of security, storage, infrastructure and cloud-based options," said Phillip G. Norton, CEO, chairman and president of ePlus. "Profitability continued to benefit from our increased scale and the growing contribution from our higher margin services business, resulting in an increase in diluted earnings per share that significantly outpaced revenue growth.
"Our technology segment posted strong year-over-year comparisons, with operating income growth of 18.3% outpacing 15.5% revenue growth, while we continued to invest in building managed services solutions to support future growth. Our financing segment's third quarter results were lower on a year-over-year basis due to lower transactional gains, but achieved an operating margin of 30.2%, additive to our consolidated results.
"For the nine months ended December 31, 2014, our revenues were up 9.8%, consolidated gross margin expanded 90 basis points to 21.2%, operating income advanced 20.7% and non-GAAP diluted earnings per share was $4.38, up from diluted earnings per share of $3.34 in the comparable period. This performance reflects our ability to add value in the planning, development, procurement and management of IT systems and solutions across a growing and diversified customer base."
"Based upon industry analyst estimates, we believe that the rate of growth ePlus achieved for the first nine months of our fiscal 2015 was significantly greater than that of domestic IT spending, showing that we are well positioned with the most in-demand IT solutions. Our year-to-date revenue growth reflects increased penetration of existing accounts as well as new customers we gained organically and through the acquisition of Evolve Technology Group in August 2014," Mr. Norton stated.
"We continue to focus on high growth segments in the IT market, and driving recurring revenues through expansion of our managed services offerings. We believe that ePlus is positioned to continue to outperform industry growth rates and to achieve year-over-year growth in services revenues. We continue to evaluate acquisition opportunities to gain new customers, solutions capabilities, and sales and engineering resources."
“We think this performance is particularly noteworthy as it was achieved while we continued to make investments in people and technology in order to support future growth. Our results today support the strategy that we have discussed with investors and that is understood and rewarded throughout our organization, namely that we expect our market share gains to come from our focus on the fastest-growing segments in the market, including data center infrastructure, networking, security, cloud and collaboration. And we have built a solid professional services capability to provide customers with complex IT solutions around these needs. This is differentiating ePlus in the marketplace and has enabled us to report revenue growth of almost 10% for the 9 months ended December 31, 2014, well ahead of the industry forecast that we have seen for domestic IT spending on both product and services.”
“In summary, we are very pleased by our performance in the first 9 months of our fiscal 2015. We believe that ePlus is moving towards fiscal 2015 with positive momentum, and we plan to continue to invest in a measured way in technology and people and make sure that we anticipate and address customers' needs. We are specialized in IT areas that are growing faster than overall IT spending. Our technical expertise enables us to provide customized solutions in an increasingly complex IT environment. And we are continuing to focus on growth organically and through acquisitions. We have highly focused go-to-market and incentive plans for our sales people to sell wider and deeper within our own customer base and capture market share for competitors as well as the resources to make additional acquisitions that add to our capabilities and expand our geographic reach. All of this supports our confidence in ePlus' future growth prospects”.
Well that’s the story for ePlus and there is nothing that Dick Whitney or Gus Rehder (two great men by the way) can do about it. Even though they gave me bad grades in high school, I’m getting an A+ in the stock market, because I AM HUGE! I’ll take this E+ to the bank!
$$$MR. MARKET$$$
www.mrmarketishuge.com
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