Post on 12-Apr-2017
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Insight Enterprises (NSIT)Recommendation: Buy
Analysts
Cameron Engel Carl Schiro cengel@nd.edu cschiro@nd.edu
Price Target: $36.52
Source:
Company Overview
Geographic BreakdownBackground
Form 10k, www.insight.com
• Headquartered in Tempe, Arizona• Leading global provider of IT solutions and
products for both commercial and government clients
• Act as a consultant and middleman to businesses looking to improve their technology infrastructure.
• Publicly traded on the NASDAQ• One of the ten largest IT hardware, software,
and services providers in the world.
68%
27%5%
Total Sales
North AmericaEurope and the Middle EastAsia Pacific
Revenue by Offering Sector Awards Won by Insight Enterprises
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Financial & Industry Metrics
Industry Comparisons
Financial Summary Stock Charts (5 Yr. & 1 Yr.)
S&P Capital IQ, www.insight.com, Form 10 Q,, Yahoo Finance
Current Price $60.29 52 Week Price Range $42.53 - $71.5050-Day Moving Average $63.86 Estimated Beta 1.27Market Cap 31.27BShares Out (mil) 497.10Average Daily Vol (mil) 7.40Institutional Ownership 84.96%Insider Ownership 0.52%Dividend Yield 2.61%NTM P/E 8.90EV/EBITDA 3.80Debt/EV 0.22xGross Margin (LTM) 7.9%EBITDA Margin (LTM) 8.0%
Stock Data Current Price 27.5452 Week Price Range 21.59-32.8050-Day Moving Average 25.92Estimated Beta 1.03Market Cap (mil) 1021.5Shares Out (mil) 37.09Average Daily Vol (mil) 0.16Institutional Ownership 98.90%Insider Ownership 1.10%Dividend Yield -NTM P/E 13.3EV/EBITDA 5.42Debt/EV 6.00%Gross Margin (LTM) 13%EBITDA Margin (LTM) 3.20%
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Key Metric NSIT Industry
EV/EBITDA 5.42x 6.7x
EV/Revenue 0.17x 0.20x
Price/Earnings 13.08x 12.0x
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Strategic Positioning
Solutions Offerings and Product Expertise Global Scale
Strength of Partners
• Offering various and high-quality solutions, Insight has partnered with some of the leading companies in the world to deliver its products efficiently and effectively
• Microsoft’s largest global partner• Top 5 Market Position with Dell, HP, Lenovo,
and Adobe• Other partners include SAP, Intel, IBM, Oracle,
Panasonic, and BlackBerry
Operational Effectiveness
Form 10k and 10Q, Yahoo Finance, www.insight.com
• Insight has well-developed service capabilities in the hardware and software fields.
• Have 1,200 skilled, certified consulting and delivery professionals
• Understands complex licensing requirements and knows how to optimize client’s usage through a robust portfolio of Software Asset Management (SaaS) services
• Has unique approach to deliver products to customers effectively
• Offers customizable client portals that allow clients to streamline acquisitions and processes through self-service online tool
• Has “direct ship programs” with many of its partners, allowing the company to increase its product without increasing inventory
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Growth Strategy
Acquisitions
• Insight has transformed from a basic reseller of computer products to a global IT solutions provider by acquiring a variety of companies
• 153% Free Cash Flow (FCF) growth during that span has allowed them to do this
• Software Spectrum, Inc. in 2006• Calence, LLC and MINX Limited in 2008• Bluemetal in October (will help with
competing in the cloud in the future)
Customizable Business Services
• Constantly engaged with top IT partners in creating, acquiring, implementing, and managing solutions that combine the company’s offerings to ensure maximum performance
• Delivered to clients through a large range of mechanisms, including on premise, remotely, or through Cloud
• Focus of scalable services include integrated collaboration, omni-channel retail, workforce mobility, and strategic outsourcing
Cloud Growth and Projections
Developing Cloud Business
• Global Public Cloud Market Size has grown from $5.82 billion in 2008 to $78.42 billion in 2014
• Exceptional growth to continue through 2020• Has unique Cloud strategy that differentiates
it from competitors • Plans on expanding Cloud portfolio to include
SaaS and IaaS in areas of office collaboration, data protection, and security
• Company investing in migration services to help move customers from the traditional IT computing to Cloud computing
Forbes, www.insight.com, Form 10K , S&P Cap IQ
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Comparable Companies
LTM 2015E LTM 2015E LTM 2015E
PCCC PC CONNECTION INC $20.53 $542.22 $469.72 0.2x 0.2x 5.7x 5.6x 12.2x 11.9x
TECD TECH DATA CORP 73.96 2641.00 2270.00 0.1x 0.1x 5.4x 6.3x 15.1x 12.7x
IM INGRAM MICRO INC 29.39 4580.00 5000.00 0.1x 0.1x 8.7x 6.5x 13.0x 9.6x
SNX SYNNEX CORP 92.11 3640.00 4070.00 0.3x 0.3x 9.0x 8.5x 17.1x 13.8x
75th Percentile 78.50 3875.00 4302.50 0.2x 0.2x 8.8x 7.0x 15.6x 13.0x
Mean 54.00 2850.81 2952.43 0.2x 0.2x 7.2x 6.7x 14.4x 12.0x
Median 51.68 3140.50 3170.00 0.1x 0.1x 7.2x 6.4x 14.1x 12.3x
25th Percentile 27.18 2116.31 1819.93 0.1x 0.1x 5.6x 6.1x 12.8x 11.3x
NSIT INSIGHT ENTERPRISES $27.54 $1,021.50 $898.60 0.17x 0.17x 5.42x 4.87x 13.16x 13.08x
Implied EV (mean) $896.28 $908.60 $1,193.04 $1,240.76 $992.31 $808.79
Implied EV (median) $733.32 $732.31 $1,193.87 $1,179.88 $967.48 $832.07
Implied Market Cap (mean) $1,019.08 $1,031.40 $1,315.84 $1,363.56 $1,115.11 $931.59
Implied Market Cap (median) $856.12 $855.11 $1,316.67 $1,057.08 $1,090.28 $954.87
Margins
1 Year 2 Year 1 Year 2 Year EBITDA
PCCC PC CONNECTION INC $2,479.20 $2,510.00 $82.90 $83.40 1.9% 3.8% 4.9% 3.4% 3.4%
TECD TECH DATA CORP 26,568.30 26,232.00 417.60 362.80 -5.2% -2.7% 2.2% 5.1% 1.3%
IM INGRAM MICRO INC 46,391.80 45,143.50 571.90 765.70 -2.9% 2.8% 2.8% 14.3% 1.6%
SNX SYNNEX CORP 13,612.60 13,340.50 454.40 480.20 -3.6% 4.4% 8.3% 11.3% 3.5%
NSIT INSIGHT ENTERPRISES $5,432.00 $5,424.50 $165.70 $184.50 2.0% 3.3% 1.8% 7.7% 3.2%
LTM EBITDA2015E
EBITDAExp. Revenue Growth Exp. EBITDA Growth
EV/Revenue EV/EBITDA Price/Earnings
Ticker Company Name LTM Revenue2015E
Revenue
Ticker Company Name Latest Close Price Market Cap (USDmm)
Enterprise Value (USDmm)
Source:
Financial Performance
Return on Equity Projected Revenue Growth
Free Cash Flow Projection ($MM) Historic EV/EBITDA
2014 Form 10-K, MSN Finance, NDIC Projections, S&P Capital IQ
2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E0.0
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Discounted Cash Flow
S&P Capital IQ,
DCF model$ in millions 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020ETotal Revenue $5,301.4 $5,144.3 $5,316.2 $5,424.5 $5,602.0 $5,761.0 $5,832.4 $5,802.3 $5,917.4
Revenue Growth 0.30% -3.0% 3.3% 2.0% 3.3% 2.8% 1.2% -0.5% 2.0%Expenses
COGS 4,581.8 4,445.5 4,603.8 4,702.0 4,806.8 5,004.3 5,129.3 5,082.3 5,163.6Gross Profit 719.6 698.8 712.4 722.5 795.2 756.7 703.1 720.0 753.8Gross Margin 13.6% 13.6% 13.4% 13.3% 14.2% 13.1% 12.1% 12.4% 12.7%
Operating Expenses 570.4 564.9 571.8 575.4 580.1 585.6 590.2 587.6 594.1Operating Income (EBIT) 149.2 134.0 140.6 139.5 153.0 171.1 112.9 132.4 159.7Income Tax 51.9 43.5 48.7 46.6 47.4 52.3 52.4 52.1 52.8
EBIAT 97.3 90.5 91.9 92.9 105.6 118.8 60.5 80.3 106.9Cash FlowEBIAT
Non-Cash Items 30.6 18.7 24.0 30.2 33.5 35.2 36.0 34.8 35.7D&A 41.2 41.5 40.6 45.6 46.6 47.2 48.1 48.6 49.2
Discretionary Cash Flow 169.1 150.7 156.5 168.7 185.7 201.2 144.6 163.7 191.8Less: Increase in NWC 97.1 55.2 30.0 33.4 55.0 53.0 62.1 64.3 52.3Less: CapEx 30.2 19.0 10.0 12.2 20.3 16.7 20.2 18.9 16.4
Free Cash Flow 41.8 76.5 116.5 123.1 110.4 131.5 62.3 80.5 123.1Free Cash Flow Growth 83.0% 52.3% 5.7% -10.3% 19.1% -52.6% 29.2% 52.9%Unlevered Free Cash Flow 41.8 76.5 116.5
WACC 9.12%Discount Period 7.5 1.75 2.75 3.75 4.75 5.75Discount Factor 0.86 0.79 0.72 0.66 0.61
Present Value of Free Cash Flow $94.8 $103.4 $44.9 $53.2 $74.5
Source:
DCF Assumptions and Results
WACC Components
Sensitivity Table
DCF Results
DCFWACC
47.41 7.1% 7.6% 9.1% 8.6% 9.1%6.3x $37.91 $37.10 $37.10 $35.56 $34.826.8x $39.81 $38.95 $38.95 $37.31 $36.53
EV/EBITDA 10.0x $39.81 $38.95 $38.95 $37.31 $36.537.5x $42.46 $41.54 $41.54 $39.76 $38.928.3x $45.50 $44.49 $44.49 $42.57 $41.65
Enterprise ValueCumulative Present Value of FCF $370.8Terminal ValueTerminal Year EBITDA $208.9Exit Multiple 10.0x
Terminal Value $2,089.0Discount Factor 60.55%
Present Value of Terminal Value $1,264.8% of Enterprise Value 77.3%
Enterprise Value $1,635.7
Implied Equity Value and Share PriceEnterprise Value $1,635.7
Less: Total Debt $52.7Plus: Cash & Cash Equivalents $175.5
Implied Equity Value $1,758.5
Implied Share Price $47.41
Shares Outstanding 37.09
S&P Capital IQ, NDIC valuations, Yahoo Finance
Cost of EquityRisk-free Rate(1) 2.06%Market Risk Premium(2) 7.20%
Levered Beta (2 year regression) 1.03
Cost of Equity 9.47%
WACC 9.12%
Source:
Catalysts & Portfolio Strategy
Upside
By offering a wide array of products and services, Insight Enterprises will be able to adjust their focus with respect to global market trends whether they are positive or negative.
As cloud computing continues to become a priority for businesses around the world, Insight already has the personal and equipment to capture a larger market segment of cloud based technology.
Strong Free Cash Flow and a history of making strategic acquisitions will increase shareholder value.
Downside
A historically high Beta indicates volatility, meaning any sort of market failure could still result in the share price of the stock to fall.
Although Insight Enterprises is far reaching when it comes to its capabilities, in the IT solutions industry any sort of technological advantage held by a competitor could push Insight out of certain sectors.
Currency valuation has a substantial impact on revenue. If international currencies continue to lose value relative to the dollar, Insight may lose revenue despite increasing sales in certain regions.
Portfolio Strategy & Recommendation
We recommend the Notre Dame Investment Club purchase a stake in Insight Enterprises at the final implied Target Price of $36.52. The company has positioned itself well to compete domestically and internationally in the largest Information Technology growth sectors. Furthermore, a strong free cash flow will allow the company to continue its growth strategies and thus increase shareholder value.
Comparables 25.63$ 50%DCF 47.41$ 50%Target Price 36.52$ 100%
Final Implied Price
S&P Capital IQ, NDIC valuations,
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Appendix 1: Income Statement
S&P Capital IQ
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Appendix 2: Balance Sheet
S&P Capital IQ
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Appendix 3: Statement of Cash Flows
S&P Capital IQ