IKON Office Solutions (NYSE: IKN) provides
document management systems and services to business and government clients. The firm leases/sells name-brand office equipment and provides associated office supplies, equipment maintenance programs, technical support and lease financing. It also offers document management outsourcing, electronic file conversions, facilities management and training. IKON operates from over 400 locations in North America and Western Europe. Xerox (NYSE: XRX) is a major competitor.
The firm pleased investors earlier in the week, when it guided fiscal Q3 EPS to the range 35-37 cents and Q3 revenues to $1.05 billion. Analysts had been expecting 30 cents and $1.05 billion. The solid outlook was driven by better than anticipated revenue and gross margin in Customer Service and Supplies and by a higher gross margin in Managed and Professional Services. Management also issued FY08 EPS guidance of $1.00-$1.05 (97 cent consensus).
The stock
popped on the news and then moved into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Brokers recommend the issue with one "buy", four "holds" and two "sells". The IKN P/E ratio (13.38), PEG ratio (1.22), Price to Sales ratio (0.25), Price to Book ratio (0.73), Price to Cash Flow ratio (5.53) and Price to Free Cash Flow ratio (5.89) compare favorably with industry, sector and S&P 500 averages. Institutions hold more than 95% of the outstanding shares. Over the past 52 weeks, the stock has traded between $6.73 and $15.65. A stop-loss of $10.70 looks good here. Note that the firm is expected to report Q3 results on June 24th, before the open.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold a position in either the stocks discussed above.
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