On Thursday, Morgan Stanley (NYSE:MS) analyst Erik Woodring raised the stock rating for Ingram Micro (NYSE: INGM), currently trading at $20.71 with a market capitalization of $4.86 billion, to Overweight from Equalweight and increased the price target to $27.00 from the previous $25.00. The adjustment reflects a positive outlook despite a generally muted hardware spending environment indicated by the 4Q24 Chief Information Officer (CIO) survey results.
Contrasting this, the 4Q24 Value-Added Reseller (VAR) Survey suggests a brighter picture, with an anticipated 5% year-over-year (Y/Y) growth in IT spending, marking a 190 basis points increase from the previous year.
Woodring notes an uptick in small business sentiment, reaching its highest level since 2018, which could signal a rebound in spending for small and medium-sized businesses (SMBs) in 2025. Ingram Micro, which primarily serves this market segment, is poised to benefit from the potential recovery. InvestingPro data reveals the company operates with a significant debt burden and relatively weak gross margins of 7.32%.
Despite Ingram Micro's recent underperformance compared to its direct peer, SYNNEX (NYSE:SNX) Corporation (not covered by Woodring), by 30 points since October 2024, the analyst believes the current valuation gap is unjustified. Ingram Micro's stock has been trading at a multiple that is three times less than its earnings (P/E turns), the widest since its initial public offering in October 2024.
The firm recognizes Ingram Micro's gross margin profile as a critical factor for valuation, which stands out among its fundamentals. Woodring's analysis suggests that at 6 times the forecasted calendar year 2026 earnings per share (EPS), Ingram Micro's stock presents an attractive risk-return balance. The new price target of $27.00 implies a 29% risk-adjusted return, justifying the upgrade to an Overweight rating.
According to InvestingPro's Fair Value analysis, the stock appears slightly undervalued at its current trading price of $20.71, with a P/E ratio of 15.12x. The move signals confidence in Ingram Micro's potential for upside gains or downside protection in the coming year. Subscribers to InvestingPro can access additional insights through 7 more exclusive ProTips and comprehensive valuation metrics.
In other recent news, Ingram Micro has announced a multi-year Strategic Collaboration Agreement with Amazon (NASDAQ:AMZN) Web Services to enhance cloud service delivery and solutions for channel partners globally. The company also disclosed a restructuring strategy that will result in approximately 850 job cuts by 2025 to improve organizational efficiency and enhance customer service. Analysts from various firms have initiated coverage on the company. JPMorgan (NYSE:JPM) started with a neutral rating, citing cautious optimism about the company's prospects in the Enterprise IT market.
Loop Capital initiated coverage with a Buy rating, highlighting the benefits of Ingram Micro's Xvantage engagement platform and its focus on higher-value products and services. Evercore ISI began coverage with an "In Line" rating, noting positive growth drivers and potential challenges for the company. Morgan Stanley initiated coverage with an Equalweight rating, acknowledging the significant role Ingram Micro plays in the IT sector.
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