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PC Connection

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PC Connection (PCCC) beats earnings for the seventh straight quarter, analysts move estimates higher and the stock is a Zacks #1 Rank (Strong Buy).

Company Description

PC Connection operates under several companies that offer custom- configured computer systems to individuals as well as government agencies and businesses.

Good Earnings Streak

We have to go back to 4Q09 to see the last time the company had a negative earnings surprise, a difficult time for many companies as the recession bottomed out. Since that time, earnings surprises have pushed price appreciation.

In the most recent quarter, the company reported earnings of $0.35 per share, topping the Zacks Consensus Earnings Estimate of $0.27 by $0.08. The December 2010 quarter, which will see comparisons during the next earnings report saw a two cent beat of the Zacks Consensus Earnings Estimate.

Among the positive news in the most recent quarter, the company noted strong year over year growth from large accounts and the product mix showed increases in every category. The desktop/server and notebook & PDA product lines each showed 17% growth from the prior year.

Dividend Buyers, and Sellers, are out

On December 7, the company paid a special one-time dividend to shareholders of record in the amount of $0.40 per share. Typically an aggressive growth company would retain this cash to invest in operations instead of paying dividends to shareholders, but the move did alert a number of investors to the name. Those who were hunting for a dividend have likely moved on, buying the dividend and probably out of the name before the end of the year.


Shares of PCCC are cheap by most valuation metrics, including a 0.14x price to sales vs. and industry average of 0.76x. Value conscious investors will appreciate that the company noted that the stock traded at a discount to tangible book value at the end of 3Q11.

A look at a trailing PE of 10.7X compares favorably to the industry average of 23.7x. As revenue and earnings improve, we expect the multiple to improve as well, but there has been contraction of the forward multiple of earnings for both PCCC and industry. Continued outperformance for PCCC will depend on earnings and revenue growth.

The Chart

PCCC holds a Zacks #1 Rank (Strong Buy), in part, due to consistent earnings increases from multiple analysts. A look at the price and consensus chart below shows how higher earnings estimates help stocks see price appreciation.

PC Connection  
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Brian Bolan is the Aggressive Growth Stock Strategist for He is also the Editor in charge of the Zacks Home Run Investor service

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