See my full article on SeekingAlpha.com…

http://seekingalpha.com/article/277806-black-box-what-s-wrong-with-an-18-7-yield-or-even-better

Black Box Corporation [NDAQ:BBOX - $31.72] is a leading worldwide provider of technical network services and related products to businesses of all sizes. They also offer over 90,000 products through their mail-order catalogue. Black Box prides itself on providing unparalleled levels of technical support. The Black Box brand has earned a reputation for high quality and reliability. BBOX serves customers through its physical presence in 40 American states and 141 countries worldwide.

Despite solid fundamentals over the past decade BBOX shares have not reflected the growth in revenues, cash flow or book value due to valuation compression. This suggests that any regression to the mean in terms of valuation should produce attractive total returns for investors getting involved at today’s levels.

Black Box fiscal years end on March 31^st of the following year. Their FY that ended March of 2009 coincided with the trough of the stock market that month and, not surprisingly,  their relative valuation bottomed at the same time. EPS dipped in the first half of FY 2009 hit by recessionary conditions and the loss of its major business relationship with Avaya. Since then the general economy has begun rebounding and the Avaya connection has been reestablished.

The results for the quarter ended December 2009 showed positive year-over-year progress and the March quarterly results (due to be reported on May 13th) are expected to see better than a 50% YOY increase.

Here are BBOX’s per share numbers:

Consensus views for the current FY and next now run about $2.96 and $3.11 making the forward multiple about 10.7x this year’s and 10.2x next year’s expectations. Those are even better than the trough valuations for BBOX during March of 2009. Back then we were facing declining economic conditions and company fundamentals versus exactly the opposite situation today. A rebound to still below normal P/BV, P/E and P/S levels could easily bring BBOX shares back to > $40 within 12 months for gains of at least 26%. Indeed, BBOX traded above $35 just days ago and topped out between $46.40 - $58.60 during each calendar year from 2000 through 2007. Zacks carries a very conservative 12-month target price of $36.10 right now.

I’m a buyer of shares on dips and a writer (seller) of puts for December at strikes of both $30 and $35. Here are realistic numbers for those options:

Disclosure: Author is long BBOX shares and short BBOX options.

52-week range: $16.24 (Mar. 9, 2009) - $37.67 (Jun. 19, 2009)

Dividend = $0.06 quarterly = 0.95% current yield

 

Black Box Corporation provides ‘Comprehensive Communications 
& Infrastructure Solutions’ to businesses in North America, Europe and elsewhere. The company provides voice solutions, premise cabling, and other data-related services and products, as well as offers technical support for its solutions that include consultation, site surveys, design and engineering, project management, single-site and multi-site installations, remote monitoring, and certification and maintenance of voice, data, and integrated communication solutions. It sells its products and services through catalog, Internet Web site, and voice and data services offices. The company serves small organizations, corporations, and institutions. As of March 31, 2009, it served approximately 175,000 clients in 141 countries worldwide. The company was founded in 1973 and is headquartered in Lawrence, Pennsylvania.

 

The overall stock market went up dramatically from the March 2009 bottom. BBOX shares followed with a move from $16.24 to $37.67 between March 9^th and June 19^th. Their fiscal Q1 report seemed disappointing at first blush with GAAP earnings of $0.44 versus $0.73 and the shares slid to close yesterday at $25.15. Read the company’s detailed report, however, and you learn that Q1 EPS were $0.71 versus $0.72 on a continuing operations [non-GAAP] basis.

 

Zacks’ and the overall consensus estimates from others are now at $2.84 /share for FY 2009 and $3.12 /share for FY 2010 (FYs end March 31 of the following year). That makes the projected P/Es < 8.9x this year’s and 8.1x next year’s expectations. Compare those multiples with their historical levels to see just how cheap these shares are right now.

 

Here are the per share numbers from continuing operations as reported byValue Line:

 

FY	Sales	C/F	EPS	Div.	B/V	Avg. P/E
2004	31.76	2.44	1.94	0.23	29.13	21.9x
2005	41.02	2.92	2.13	0.24	30.76	19.9x
2006	57.99	3.32	2.00	0.24	34.22	20.9x
2007	58.05	3.25	2.22	0.24	36.55	16.8x
2008	57.02	3.77	2.59	0.24	36.93	10.8x

 

Every measurable data point is higher now than previously yet the share price is not reflecting the gains in sales, C/F, B/V or earnings.

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