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IM [$16.91] showed $0.41 for their June quarter versus $0.20 in 2009 and guided for $0.41 for Q3 against last year’s $0.29. Zacks recently raised it full year EPS goal to $1.87 /share. Current expectations for 2011 are running $2.07 (see earnings call transcript here).

That puts IM’s multiple at just 9x this year’s and 8.2x 2011’s earnings – about the lowest valuations ever for this world leader in wholesale distribution of computer products and services.

The shares bottomed below $15 just a few weeks ago and now are in a clear uptrend again. With both the 2010 and 2011 estimates at all-time record levels I see no reason why IM can’t exceed its old highs from 2004 – 2008 when it peaked each year between $20 and $22.50.

I’m willing to play for a move to at least $20 by March 19, 2011 by putting on this buy/write combination:

Cash Outlay

Cash Inflow

Buy 1000 IM for $16.91 /share

$16,910

STO 10 Mar. $20 calls at $0.40 /share

$400

STO 10 Mar. $20 puts at $3.40 /share

$3,400

Net Cash Out-of-Pocket

$13,110

If Ingram Micro moves up to $20 or better [+18.3%] by March 19, 2011:

· The calls will be exercised and the puts will expire.

· You will sell your shares for $20,000.

This best-case scenario would result in a profit of $20,000 - $13,110 = $6,890.

$6,890/$13,110 = + 52.5%

Achieved in just 7.5 months on shares that only needed to rise by at 18.3%.

If IM remains below $20 on March 19, 2011 you’ll end up with 2000 shares of Ingram at an average cost basis of $16.56 /share – a 2.06% discount to the August 2nd closing price.

More conservative investors could buy the shares while writing the March 2011 $17.50 calls and puts.

Cash Outlay

Cash Inflow

Buy 1000 IM for $16.91 /share

$16,910

STO 10 Mar. $17.50 calls at $1.20 /sh.

$1,200

STO 10 Mar. $17.50 puts at $1.70 /sh.

$1,700

Net Cash Out-of-Pocket

$14,010

In this case any move up to $17.50 or higher [+3.5%] by March 19, 2011 would see the calls exercised and the puts expiring.

The profit would be $17,500 - $14,010 = $3,490.

$3,490/$14,010 = + 24.9% achieved on any rise of 3.5% or better over the 7 ½ month time horizon for this trade.

Should IM fail to finish above $17.50 you’ll end up owning 2000 IM at an average cost of $15.76 or 6.8% below our trade inception price.

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

Source: Ingram Micro – Q2 Beats, Full Year Estimates Rise

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