Ingram Micro, Inc. (NYSE:IM)

heals07 (63.48) Submitted: 5/12/2011 10:08:50 PM : Start Price: $18.87 IM Score: -26.87

I took a long time deciding whether to go long or short this one. I began my analysis by looking at the Free Cash flows. My intention was to do a free cash flow valuation but I ran into some difficulties when I noticed all past years free cash flows were basically negative (16 years of data). The equation I used was EBIT(1-t)+ dep - capital exp- ?NWC. The firm list a change in nwc amount in their cash flow statement, but I used the balance sheet to get my number and it always differed from the statement of cash flows. Wasn't sure what to think about this. When I realized a normal valuation wasn't going to really work I began looking at a buyout valuation. For the last fiscal year end, Ingram had EV/EBIT and EV/EBITDA of 11.85 and 9.931 respectively. Ingram's twelve trailing month EV/EBIT and EV/EBITDA of 10.663 and 9.06. NYU provides these ratios for every stock in the US market, using a pivot table I was able to sort the information and see only the stocks in Ingram's industry and their corresponding ratios. I then averaged the EV/EBIT and EV/EBITDA of all the companies to come up with average ratios of 23.44 and 13.32 respectively. From what I have seen most deals reference a EV/EBITDA multiple. According to my analysis an acquiring firm would pay market value $4,792.62 million for Ingram. This is a 57% premium to the current stock price. The total cost of to acquire the firm would only be $4,430.73. This is because the buyout ratio predicts a price of $5449.62 for the buyout. Ingram has $1018.88 million in cash which reduces the acquiring company's purchase price.The company looks cheap historically on these ratios, I cant short a company that has a potential to be bought out with a 57% premium. Real life I look to enter at $16.40's.