Raymond James Upgrades PC Connection Following 'Solid' Results

Raymond James on Thursday issued a company note on PC Connection, Inc. PCCC following strong 4Q15 results that included revenue and EPS that beat consensus estimates. Raymond James upgraded PC Connection from Underperform to Market Perform, although a price target is unavailable.

Analysts Brian Alexander and Adam Tindle wrote, "While the quarter benefited from early project completions that were scheduled for 1Q, revenue growth would have been just over 5 percent...which is solid in light of distributor results that have indicated minimal domestic IT growth... Margins should continue to expand as management is intent on growing net income faster than revenue."

Shares traded recently at $22.25, up 9.6 percent.

Raymond James highlighted two keys that could drive PC Connections stock higher in 2016:

1. Software growth

Analysts noted that management cited strong demand for solution based projects in a recent investor call, with software growth attributed to strong cloud based sales. This increase in cloud sales may offset the predicted decline in hardware sales while making the company more profitable as software has higher margins than hardware.

2. Top line expansion

PC Connection's goal is to exceed 3 percent revenue growth, which can be accomplished through higher penetration rates with existing customers and introducing innovating products, particularly in the healthcare sector of the company's business line, which grew 16 percent in 2015.

Raymond James analysts are concerned that this focus may detract from profitability, particularly with the issue of hardware deflation, however, research analysts believe that the trend of cloud based sales should keep margins intact for the foreseeable future.