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STOCK WATCH

Micro D Shares Nearly Double in Value

February 22, 1987|FREDERICK M. MUIR

This time, the insiders may have been wrong.

Just a year after the founding shareholder of Micro D sold out, the Santa Ana-based company's shares have finally taken off.

During the past eight weeks alone, shares of the microcomputer products distributor busted out of the $4- to $5-trading range and nearly doubled to close at $8.50 in over-the-counter trading Friday.

And at least one analyst thinks the shares could jump to as high as $15 a share within the year.

At that level--the high-end estimate of E. Hunter Thompson Jr., a securities analyst with Branch, Cabel & Co., an investment firm based in Richmond, Va., shares would almost be back to the $16-per-share price at which the company went public in 1983. In the years after the initial offering, the stock eventually wandered down to the $2 range.

It was at that level that company founder Lorraine Mecca sold her 51% stake in February, 1986, to Nashville-based Ingram Distribution Group Inc. In September, 1986, investor Fred Adler sold his 10% stake to Ingram at about $4.75 a share.

Market Fascination

Analysts say the big run-up in Micro D's share price since then is based in part on the market's re-found fascination with high technology stocks.

But perhaps more importantly, these analysts said, is the company's return to profitability and the near doubling of its sales through the first three quarters of 1986.

At the nine-month mark, Micro D posted net income of $1.8 million, or 26 cents a share, compared with a loss of $1.3 million in the year-earlier period. Sales jumped to $145.8 million from $75.2 million a year earlier.

The fourth quarter and final year-end numbers are scheduled to be released within the next two weeks.

Analyst Thompson estimates the company will report net income in excess of 35 cents a share for the year.

Micro D. Chairman Linwood (Chip) Lacy said he does not make estimates of earnings. Still, he said, investors will find the year-end results "a good report," with sales in excess of $220 million, up from $119.8 million the prior year.

For 1987, Lacy said, sales should top $300 million.

With its sales booming, Micro D has rocketed in just one year from being the nation's fourth largest distributor of microcomputer products and software to being No. 1.

Higher Profit Margins

Lacy said the company has centralized many marketing and distribution functions, cut costs and broadened its market to include more small retailers, which provide higher profit margins.

What has helped Micro D along the way was the collapse of four of its big competitors, including Boston-based First Software Inc., which sought protection from its creditors in a Chapter 11 bankruptcy proceeding in late 1985.

With all this going for Micro D., Merrill Lynch put the stock on its buy list in early January, and the Atlanta-based brokerage firm of Robinson Humphrey Co. recommended the stock a few weeks later.

Jeff Kilpatrick, president of Newport Securities Corp., began recommending the stock to his clients in September at about $4. and now reports that some are taking their profits. Still, Kilpatrick sees continued strong growth for Micro D. "This could be a $1-billion company. Someone has to become the American Hospital Supply of the microcomputer business," Kilpatrick said, referring to the giant medical products distributor.

In Hold Position

Thompson had Micro D on his buy list during the fall but now has temporarily retreated to a hold position. "If it pulls back to the $7 or $7.25 level, it would be time to buy again," Thompson said. He said the stock could go to $12 to $15 within the year, based on his estimate that earnings will double to 70 cents a share in 1987.

Most watchers agree that Micro D's sales and earnings will continue to soar. But what complicates the outlook for movement in Micro D's share price is the big position held by Ingram Distribution.

Its unclear at this time whether Ingram will attempt to buy the remaining 40% of the company, sell its position to a third company, merge with Micro D or do nothing at all.

"The most interesting thing about the Ingram position is that you can convince yourself of anyone of the different options," said Lacy. "Frankly I've stopped thinking about it."

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