We upgrade our recommendation for 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 negative consequences of the proposed merger between AT&T and T-Mobile USA are already reflected in the current valuation as it has plummeted nearly 39% in the last four months after this news surfaced. In the previous two quarters, Brightpoint managed record-high mobile devices. Most importantly, the majority of these wireless handsets were managed through the company's high-margin Logistic Services.
Management reaffirmed a rosy picture for the rest of 2011. We believe the business fundamentals of Brightpoint remain intriguing. Newly won distribution agreements coupled with effective cost control strategies will pave the way for the company's future earnings growth. Our price target of $9.75, is based on 11.9x our fiscal 2011 earnings estimate, approaching the S&P 500 average.
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