Ingram Micro loses luster

Like a rocket, the IPO for distributor Ingram Micro (IM) soared in November, but the company's stock performance has since plunged as the PC industry has slowed.

As a leading worldwide distributor of a vast line of computer products, its performance rests to some degree on the industry as a whole. Ingram Micro is now feeling the computer industry's lackluster fourth quarter, which led its stock price to fall to levels close to its IPO price of $18 a share.

The reason is simple. Until February 19, when Ingram reports its first full quarter as a public company, investors and analysts will tend to look back to the sluggish Christmas season, and that affects the stock price.

Tandy, Best Buy, and Circuit City, for example, saw sales at stores that have been open at least a year fall in December from year-ago figures.

"There were a lot misplanned holidays. There was too much inventory, and to make earnings you can't afford to be off," said Deutsche Morgan Grenfell assistant vice president Steve Fortuna.

Ingram's much-hyped IPO went through on November 1 before there were any indications of a slow holiday season. They were priced at $18 a share, but when its first day of trading started, they were already up 12.5 percent to 20-1/4.

But some analysts say Ingram Micro is wrongfully lumped with the personal computer industry.

"They are not affected by the retail PC market because they really don't have much of a presence in that market," said International Data Corporation senior analyst Steve Baker. "They sell to midsize corporate resellers who sell to corporations. And the corporate industry was pretty strong in the fourth quarter."

Analysts expected the company's initial success to continue. "We haven't seen anything comparable in the technology sector with its kind of name this year," said Manish Shah, editor and publisher of the IPO Maven, in an earlier interview.

Anticipating heavy demand, the estimated price on Ingram's 20 million share offering was boosted to a range of $17 to $19 a share from $14 to $16 a share, a day before the offering, according to underwriter Morgan Stanley.

"It is definitely one of the best offerings of the year. There is great demand," Shah said at the time. "I think it will remain strong and by the end of year, it could be a $30 stock."

But Shah's expectations did not foresee the upcoming downturn in the PC industry. "It began in November, but it really mushroomed over the last four to six weeks, and this is what fuels weakness in the sector," said Fortuna. "Two weeks out of the quarter is a lot."

As the year came to an end, Ingram's stock traded from it high of 28-1/8 only days after its IPO, to its low of 19 on January 6. The stock ended up closing at 19-7/8 that day.

And, while the company's stock gained some ground in January as expectations that Office 97 and MMX multimedia chips would result in a boom for the computer business, Ingram's stock fell to a day low of $19 again on February 5.

"Investors are more focused on the near term," said Robinson Humphrey analyst Neal Johnson. "They want to validate the estimates that are available to them before deciding what kind of potential of company has for the future."

Johnson said Ingram's business was strong in fourth quarter and that it recently gained authorization to distribute Hewlett-Packard products as well as Sun workstations.

He explained that the current stock valuation is no indication of how business has been since the close of the year. "Essentially, where the stock has been trading is just an indication of where the business was in the fourth [quarter]."

But IDC's Baker said Ingram may surprise everyone when they release their results, given that the state of the retail PC industry doesn't really affect them.

"Whenever anybody thinks of the fourth quarter, they think of retail and consumers, but the home PC market makes up only 40 percent of U.S. shipments," he said.

Baker added that corporate resellers, which had a strong fourth quarter, comprise 80 percent of Ingram's revenues.

Once a company is locked into a misrepresented roll, it is hard to change that image, Baker said. So Ingram's upcoming financial results may put 1996 behind them.

"Product shortage fears have been largely put to rest. Holiday issues are irrelevant, and the only [concern] left is product demand. And across the board consistently, the demand is solid," said Fortuna. "We think that the investors are going to come back into the group."

Wall Street is expecting the company to report 28 cents a share, according to First Call.

"Now would be a good time to buy, because there really isn't any reason that Ingram shouldn't be growing stronger," added Baker.