Brightpoint (CELL) and Formfactor (FORM) were the two major small cap movers in the technology sector on Monday. Here are some of the specifics about these stocks and what to expect from them going forward.
Brightpoint was down 15.28% on Monday. Recent announcement that AT&T (T) has signed a definitive agreement to acquire T-Mobile USA from Deutsche Telekom (OTCQX:DTEGY) is a negative for Brightpoint. Brightpoint is at a risk of losing T-mobile as customer because AT&T logistics are primarily handled in house (with a small amount of work outsourced to GENCO ATC). In the past also, when Verizon (VZ) acquired Alltell (a Brightpoint Customer) in 2009, Brightpoint lost the logistics business at Alltell. According to Jefferies and Co. analyst Peter Misek, T-mobile represents over 10% of Brightpoint’s profit. Current consensus FY12 EPS for Bright point is $1.17. Even if we reduce it by 10% ($1.05), Brightpoint’s current price of $10.70 implies ~10x PE valuation which is attractive. It appears like most of the damage is already done and given the fundamental strength in other parts of the business one can buy Brightpoint at these valuations for the long term.
Formfactor was up 14.47% on Monday after Citi Analyst Tim Arcuri noted that FORM recently got a major order for Matrix-based DRAM probe card from Elpida. Formfactor is also seeing significant demand after Japanese earthquake as ~40% of production facilities of its Japanese rival MJC has been interrupted. Thanks to these trends there is a chance that FORM may achieve cash breakeven in CQ2. FORM has ~$6 per share of net cash and $1 per share of deferred tax assets. At $9.89 share price, it is clear that investors are not giving much credit to Formfactor’s business. These positive trends which can help Formfactor reach a breakeven cash flow are a definite positive for FORM shares and the shares may continue to outperform in the near term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.