Electro Rent: A Play On The Corporate Rental Business Trend

| About: Electro Rent (ELRC)
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Electro Rent Corporation (NASDAQ:ELRC) is one of the largest global organizations devoted to the rental, leasing and sales of general purpose electronic test equipment, personal computers and servers. The economic uncertainty throughout 2012 is driving an increased demand for equipment acquisition alternatives, such as rental, which do not require large capital outlays or commitments. Electro Rent is a great play on the corporate rental business trend while growing earnings and paying a 5% dividend yield.

The Company rents equipment purchased from manufacturers, such as Agilent Technologies, Inc. (Agilent) and Tektronix Inc. (Tektronix) primarily for use by its customers in the aerospace, defense, telecommunications, electronics, industrial and semiconductor industries.

Total revenues increased 5.8% to $65.2 million for the fiscal 2013 second quarter, from $61.6 million for the fiscal 2012 second quarter. Rental and lease revenues grew to $34.6 million for the second quarter of fiscal 2013, up from $32.9 million for the second quarter of fiscal 2012.

Operating profit for the fiscal 2013 second quarter was $10.3 million, or 15.8% of total revenues, compared with $9.4 million, or 15.3% of total revenues, a year ago.

Net income for the fiscal 2013 second quarter totaled $6.2 million, or $0.26 per diluted share, versus $6.0 million, or $0.25 per diluted share, for the fiscal 2012 second quarter.

Net income was affected by an increase in expenses related to more sales enhancements. Total operating expenses were $54.9 million for the fiscal 2013 second quarter, versus $52.2 million last year. The increase was primarily related to the enhancement of Electro Rent's sales and sales support organizations, as well as its administrative infrastructure, to better position the company to capitalize on future growth opportunities.

Electro Rent paid dividends of $4.9 million for the second quarter of fiscal 2013. On an annualized basis, Electro Rent's current quarterly dividend of $0.20 per common share represents a 5.13% yield. The company has a 5-year average dividend growth rate of 15% per year. Electro Rent did not increase its dividend the past year as it elected to pay a $1.00 special dividend in December 2012.

Electro Rent is trading at a price earnings of 16.6 which is near the industry average. The company has no long-term debt. The company's management team has performed well with both gross and operating margins in the 90th percentile of the industry.

Electro Rent is projected to grow EPS from $0.94 per share to $1.11 in fiscal year 2014. This is an increase of 18% which will move the stock price higher in the coming year. Electro Rent has a strong buy recommendation from analysts following the company. Electro Rent has a 12-month average price target of $22.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.