Consolidated Graphics, Inc. (CGX) reported first quarter EPS of $0.84, down 12.5% year-over-year, due to the negative impact of a weak economy on sales volumes and selling prices. Due to lower-than-expected revenue, the company could not leverage its fixed costs.

However, the company's strategic sales initiatives (national account customers and CGXSolutions) continue to grow and its cash generation remains strong enabling it to invest in strategic acquisitions. We expect decelerating sales and EPS growth in FY09 on weaker same-store sales expectations.

Applying a P/E multiple of about 8.4x to our FY09 EPS estimate, we derive a target price of $41 per share. With a total return potential of less than 10% from the current price, we maintain our Hold recommendation on shares of CGX.

There are several positive factors impacting Consolidated Graphics operating performance, including positive trends being witnessed in the company's nationwide sales. The company actively pursues multi-year printing contracts from large corporations that seek to consolidate commercial print providers.

Another positive factor revolves around the development of value-added services through Consolidated Graphics CGXSolutions. The print-related software and electronic solutions available to customers include proprietary Internet-based software COIN (Custom Ordering Interactive Network) that assists ordering, proofing, workflow management and fulfillment of printed materials.

Its other Internet-based software product, OPAL (Online Private Asset Library) enables the storing, archiving, retrieving and distribution of digital assets such as images, logos and documents from any location through a web browser. The company plans to introduce StoreFront 2.0 in the third quarter of fiscal year 2009.