Bull of the Day: ePlus (PLUS)

ePlus (PLUS) is an $823 million technology integrator and solutions provider to corporate enterprise, healthcare, education, and public sector/government institutions across North America.

Big top and bottom line beats reported in early November for their fiscal 2017 second-quarter have estimates rising into next year and consequently the stock is back to a Zacks #1 Rank Strong Buy.

With a record $1.268 billion in sales for the past 12 months ending in September -- giving it a very attractive Price-to-Sales ratio of 0.65 -- ePlus is focused primarily on specialized IT segments including data center infrastructure, networking, security, cloud and communications collaboration.

The company's solutions incorporate hardware and software products from multiple leading IT vendors. And in December PLUS added a small vendor to its portfolio of services with the acquisition of Minnesota-based Consolidated Communications Holdings, half of whose 2015 revenue of $55 million was derived as a Cisco (CSCO) gold partner.

Q2's Big Beats

While the Wall Street consensus was looking for EPS of $2 on revenues of $339 million, ePlus delivered EPS of $2.47 on sales of $371.5 million. Here were the highlights from the company release...

Net sales increased 10.5% to $371.5 million; technology segment net sales increased 11.3% to $362.7 million.

Adjusted gross billings of product and services increased 13.0% to $487.3 million.

Gross margin on sales of product and services expanded 80 basis points to 20.2%; consolidated gross margin increased 70 basis points to 22.1%.

Net earnings increased 7.0% to $16.8 million.

Adjusted EBITDA increased 7.4% to $29.9 million.

Diluted earnings per share increased 12.6% to $2.42. Non-GAAP diluted earnings per share increased 12.8% to $2.47.

The ePlus Hospital Without Walls Solution

No better example of the innovative and critical solutions ePlus is trusted with can be found than in the healthcare sector with this week's news.

On January 4, PLUS announced that it designed and deployed a full technology infrastructure upgrade for Garrett Regional Medical Center in Maryland. This was important to the hospital as they fulfill the unique function of being a "border" hospital the serves patients from West Virginia and even Pennsylvania too.

The solution included:

Desktop and server virtualization

Storage area network

Wireless and telemedicine infrastructure

Disaster recovery

Garrett Regional Medical Center is a 55-bed, not-for-profit, acute care facility with a long history of serving the health care needs of Garrett County, Maryland and the surrounding communities in West Virginia.

The technology refresh for Garrett enables streamlined applications and clinician access, bedside medication verification, improved user experience, enhanced collaboration on patient cases, and continuity of care.

Valuation and Targets

PLUS shares have had quite a run since that earnings report, up over 30% from $90 to nearly $120. This has stretched the valuation somewhat. For example, Stifel Nicolaus analysts raised their 12-month price target on shares in early December to $113 based on 14X their fiscal year 2018 (starts in April) EPS of $8.06.

The Stifel analysts noted then that consolidation among major IT vendors like Dell buying EMC is a positive for ePlus as mergers typically lead to staff reduction and the need for resellers to help support smaller customers.

Back in November, another prominent Wall Street investment bank noted that at $90 the stock was trading at 12.5 times their calendar 2017 EPS estimate of $7.20, compared to the peer group at a blended group median multiple of 11.8 times.

It seems that given its growth in cloud services and security, and its pedigree of partners that reads like a who's who of the top technology companies, PLUS is afforded a higher multiple for a small cap stock with a 25-year history. I don't know when it makes new highs above $120, but I would have it on my radar on dips to $110.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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