Friday, March 19, 1999
Price (3/18/99): $6 11/16
HOW DID IT FIND TROUBLE?
Like a cellular phone call coming undone in a sea of static, shares of Brightpoint have been breaking up. At least the company spoke with some degree of clarity when it pre-announced that earnings for this quarter would be "approximately zero." It was not a number investors were expecting to dial with analysts projecting earnings of $0.22 a share for the March 1999 quarter.
While business continues to look strong in the U.S., international woes seem to have swallowed up any trace of profitability this quarter. Approximately. Since January the company has been dealt a series of blows overseas. There have been supply problems in Asia, primarily in China and Taiwan. Also, the once lucrative Brazilian market has suffered in the currency translation since Brazil's real was devalued earlier this year.
Shareholders have been on a wild ride with this one. A year ago the shares were at $20 before crashing down to $5 in October. Three months later the stock had nearly quadrupled back to the old highs. No stranger to volatility, the shares have once again returned to the mid-single digits of October. Who said the golden age of wireless would take on the form of a roller coaster?
Brightpoint is engaged in the sale of wireless equipment worldwide, with handsets accounting for 81% of revenues last year. With headquarters in Indianapolis, Indiana, the company also provides outsourcing services like inventory management and prepaid solutions to equipment makers and network operators.
12-month sales: $1,628.6 million
12-month income: $39.7 million*
12-month EPS: $0.74*
Profit Margin: 2.4%
Market Cap: $355 .1 million
(*Excludes one-time gains and charges)
Cash: $49.5 million
Current Assets: $549.2 million
Current Liabilities: $188.1 million
Long-term Debt: $286.7 million
HOW COULD YOU HAVE SEEN IT COMING?
Wall Street didn't see this one coming. Nine of the ten analysts following the company had the stock rated as a "strong buy" the day Brightpoint made its dim earnings warning. BT Alex. Brown had even upgraded the shares just last month.
The same market forces that sent the stock tumbling more than 75% last year were still lingering. In 1997 the Asian market accounted for 42% of Brightpoint total sales. A year later the region made up less than a third of Brightpoint's take and has continued to diminish through the last quarter.
With crumbling currencies in Asia and South America to deal with, the life of a company in which exports account for the lion's share of sales has been difficult. This is not a hot news item. Brazil's real was marked down in January, and the Asian flu has been festering for more than a year now.
Brightpoint was certainly not immune, and it set itself up to be quite exposed to the malady.
WHERE TO FROM HERE?
Buy, CELL, or Hold? Brightpoint's logo reads, "It's a wireless world, where can we take you?" Now that investors know where Brightpoint has taken them, the bigger question is: Can they still get a return ticket?
The malaise overseas has created an opportunity given the company's domestic success. Granted, Brightpoint won't earn the $1.05 a share that was projected for this year. It should also be noted that the company is struggling this quarter in Europe where the factors may not be as external as the problems in Asia and South America.
While sales for this quarter will come in a bit higher than last year's first quarter, they will still be down 20-25% sequentially. That is not exactly a groundswell of positive momentum. However, the company has begun to diversify. Handset sales as a percentage of total sales has been trimmed from 90% in 1997 to 81% last year. The growing services should help defray some of the supplier concerns.
Given the stock's erratic ways, any kind of return to international stability will probably send the shares right back up that hill, but are you patient enough to wait for the ride to start?
-Rick Aristotle Munarriz
Change the World... work for the Fool.
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