Brightpoint Upgraded to Neutral

We are upgrading our recommendation on Brightpoint Inc. ( ) to Neutral as the company has slowly started gaining new orders, which may partially offset the loss of a major client of the company’s high-margin Logistics segment in the U.S. Moreover, the stock is currently trading at attractive valuation multiple as it plummeted over 56.5% last year.

Nevertheless, broader worldwide macro-economic volatility remains a major near-term concern. In first-quarter 2012, gross margin, operating margin, and net margin dropped 1.5%, 0.5%, and 0.6% year over year, respectively. Management was forced to revise its financial outlook downward twice for fiscal 2012 in the last three months due to a major client loss and macro-economic fluctuations. The market has become intensely competitive. Recent consolidation trend among wireless operators may also become a long-term negative for the company.

Brightpoint announced that one of its major customers in the U.S. started the process of terminating its existing contract with the company since April 2012. This U.S. based customer is expected to complete its transition to a new vendor by the end of 2012. Brightpoint managed 6.8 million wireless devices for this particular client in 2011, which accounts for 8% of the company’s total managed devices through the Logistics segment.

Meanwhile, in June 2012, Brightpoint has won two vital contracts as well as renewed another important deal. The company has entered into a logistic assistance agreement with MetroPCS Communications Inc. ( ) and renewed its existing logistic assistance agreement with Sprint Nextel Corp. ( S - Analyst Report ) to provide service to the latter’s several prepaid wireless businesses. Furthermore, Brightpoint also received a distribution and services contract from Duracell Powermat LLC.