We upgrade our recommendation on Brightpoint Inc. (CELL) to Outperform based on our view that galloping demand for high-end smartphones and tablets throughout the world will drive the company’s valuation level higher in the near future. We believe the long-term business prospect of Brightpoint remains intriguing buoyed by the growing demand for high-end pocket digital assistances globally.
Newly acquired devices distribution agreements coupled with effective cost control strategies will pave the way for the company’s future earnings growth.Brightpoint reported strong financial results in the last quarter. Management further reaffirmed a rosy picture for the rest of 2011. We also believe the negative consequences of the proposed merger between AT&T Inc. (T) and T-Mobile USA are already reflected in the current valuation, which is at present trading at an attractive multiple compared with its peers and the S&P 500 average.
Acquisition ofTouchstone Wireless Repair and Logistics, a leading provider of repair and reverse logistics services to the wireless industry is expected to be slightly accretive to Brightpoint’s fiscal 2011 EPS. The company is integrating Touchstone’s state-of-the-art asset management and product recycling activities to offer a whole bunch of innovative supply-chain management systems in more than 25 countries. Brightpoint has bought a 23% stake in Intcomex Inc., a leading provider of IT products in Latin America and the Carribean region. As per the deal, Intcomex will be allowed to sell its products through Brightpoint’s dealers.
This mutual relationship benefits Brightpoint in two ways. Firstly, controlling a 23% stake allows Brightpoint to be present in Intcomex’s Board of Directors. Secondly, the deal enables Brightpoint to access the Latin American and the Caribbean markets, where Intcomex is positioned well for more than 20 years. Currently, Intcomex holds a chain of approximately 44,000 resellers, retailers and customers across Latin America and the Caribbean region.
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