A steady increase in the number of autos on the road, an increase in the average auto age to 9.5 years, and an incessant increase in the number of miles driven (3% annually) should increase the demand for repair products.
Vital Images Looks Longer Term
Vital Images, Inc. (VTAL) develops medical software for use primarily in clinical diagnosis, disease screening and therapy planning. The company's software applies proprietary computer graphics and image processing technologies to a wide variety of data supplied by computed tomography (CT), magnetic resonance (MR), and positron emission tomography (PET) scanners.
After this year, the company expects to once again generate strong growth by capturing a growing share of customers in an expanding worldwide market for three-dimensional medical imaging products. However, the company's ability to maintain high gross margins is at risk from its dependence on Toshiba, which is expected to increase.
The company's sound cash position is being utilized for stock repurchases and may lead to an acquisition over the long-term. We believe VTAL is appropriately valued at roughly a group premium of 3.3x 2009 revenue estimate. Our price target moves to $17.50, and our Hold rating is maintained.
Ingram Micro Looks Fairly Traded
On September 16, Ingram Micro, Inc. (IM) reduced its outlook for the third quarter. The company now expects sales of $8.3-$8.6 billion and EPS of $0.18-$0.23. This is down from its previous outlook of $8.5-$8.8 billion in sales and EPS of $0.31-$0.36. The management indicated that the economic softness that began in July and August has extended into September.
In our July 25 report, we noted that Ingram Micro could disappoint because of slowing economic growth in North America and Europe. Accordingly, we are reducing our estimates for 2008 and 2009. Even so, we think that Ingram Micro will be able to manage its operating costs in this difficult environment and deliver solid operating leverage over the long term.
Ingram Micro shares trade at 13.0x our 2008 EPS estimate and 10.4x our 2009 EPS estimate. While this valuation may appear cheap, we think it represents a fair value, relative to its peers and long-term earnings growth rate. As a result, we think shares of IM will track the performance of the S&P 500 over the next six months.
