April 13, 2009 - Tech Data Corp. (TECD-NASDAQ) distributes information technology products, as well as offers logistics management and other value-added services worldwide. It sells microcomputer hardware and software products to value added resellers, direct marketers, retailers, and corporate resellers.

What made me stop and look deeper into Tech Data was the fact that its book value is $34.37. It's selling for $23.64 and still very profitable. Benjamin Graham would spend time with this stock. It's like buying dollar bills for 68 cents.

Profits will diminish this year. Analysts see $1.77, well below the $2.40 of last year. Next year, they should be $2.10 with a range among analysts of $1.85 to $2.39. Over the last 5 years, earnings have been down, on average, 6% a year, but those numbers are volatile. In 2002, earnings per share (eps) were $2.35, then dropped to $1.85, followed by $2.55 in 2004, back down to $2.02, falling further to $1.26. Then in 2007, they almost doubled to $2.48. Don't look for smooth riding here. In fact, the price chart reflects the volatility of the eps.

The stock crashed last year in the October/November meltdown, going from its 52-week high of $37.90 to $14.10 before it was over. It's regained some of the ground (up 68%) but still well below its 52-week high. In 2000, it traded at $55.90 (eps was $3.14 that year). The price chart between 2000 and 2004 looks like a roller coaster. Then the stock traded in a range of $32 to $46 until late last year when it broke down.

Quarterly eps will be out in May. Analysts see 33 cents a share, well off the 43 cents of last year's first quarter (fiscal year ends in January). Next quarter looks like another 33 cents, below the 45 cents of last year's second period. But that's no surprise in this economy.

In fact, in the last quarter of its fiscal year, sales were off by 12% compared to last year's final quarter. Oddly enough, eps was up 27%. The net income increase came from higher prices on some products and services, operating efficiencies, 8% fewer shares outstanding thanks to a buyback program, and profitability of a joint venture with Brightstar Europe which until then had reported losses.

Don't expect continued divergence between sales and eps. Industry experts suggest the mid-point decline in global information technology spending for 2009 is 15% with the biggest drop in March. Management has already predicted a 20% drop in the first quarter's sales on a year over year comparison. And some of the reasons for the final quarter's good news (pricing power in particular) will go away as competition intensifies for the remaining orders still available. There's also a change in accounting rules about the firm's $350 million convertible which will knock off 12 cents a share.

Having spelled out the negatives, there's still good reason to consider this stock. As mentioned above, it seems to have already discounted most, if not all bad news. It usually traded within a range at least 50% higher than the current price. The company is still profitable in the worst economic climate since the early '30's. Analysts see profits growing by 8% annually, on average, over the next 5 years. New ventures are just starting with expansion into complementary product and geographic markets. Their positive effects should be felt in 2010. New partnerships are also being formed in various IT sectors. Free cash flow is strong and would allow the company to buy other firms in distress or buy back stock.

More numbers: Price to book is .67. Price to sales is a very low .05. Operating margin for the last 12 months was 1.04% while Profit margin was .51%. Total cash is $528 million to make cash per share $10.54. Current ratio is 1.66. Book Value per share is $34.37. Beta is 1.25. Total shares outstanding are 50.11 million with a float of 46.4 million. Insiders own 3.15%. There is no dividend.

Tech Data suffered from the market collapse and may relapse to its lower price if the economy gets worse. But it seems that investors are starting to warm to it again, seeing the compelling valuation and the future prospects. Take some time with TECD and see if it fits your risk profile. It's not for everyone with an eps history that's been very volatile.

- Company Web site: www.techdata.com

- Ted Allrich