Outlook Dims on Brightpoint

We downgrade our recommendation to Hold with a reduced valuation target for Brightpoint (CELL - Analyst Report), a leading distributor of devices and logistic services to the wireless industry, following disappointing first quarter 2008 financial results. Revenues were significantly lower on a sequential quarter basis with business loss in the European and Middle-East regions. Net earnings were also strained as operating expenses soared following the company's two recently concluded acquisitions.

Looking forward, we expect that recent weakness in the global economy may generate further short-term sales challenges. Nokia (NOK - Analyst Report) and Sony-Ericsson (SNE - Snapshot Report)-(ERIC - Analyst Report), the two major mobile handset developers, announced expectation soft demand in 2008 supporting our forecast. The company's tight operating margin condition may also limit investments in new business endeavors. However, two recently concluded distribution deals with Research In Motion (RIMM - Analyst Report) and HTC Corp. (HTC) may generate future business improvements.

Brightpoint is trading at 14.1x to our estimated earnings for 2008, which represents a discount to the forward P/E ratio for the S&P 500 but a premium to the peer group. However, with respect to P/S and EV/S metrics, the stock is trading below the industry average. We believe this valuation discount reflects the company's disappointing first quarter results coupled with a challenging business environment. According to our assessment, business volatility will continue for the remainder of 2008 and, therefore, we reduce our rating to a Hold with six-month target price of $12, based on 0.19x P/S to our fiscal 2008 revenue estimates, closer to the peers.

Nalak Das contributed to this report.

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