Raymond James: Insight Enterprises Surrounded By 'Excess Optimism,' Don't Buy Into It

In a report published Friday, Raymond James analyst Brian G. Alexander downgraded the rating on Insight Enterprises, Inc. (NASDAQ: NSIT) from Market Perform to Underperform, citing "excess optimism."

Insight's shares have jumped 24 percent year-to-date, despite a downward revision in the revenue and EPS estimates. Insight's valuation as compared to that of CDW Corp (NASDAQ: CDW) has expanded to historically high levels. Analyst Brian G. Alexander believes the risk/reward is "skewed to the downside."

In the report Raymond James noted, "Insight is benefitting from healthier enterprise spending, with solid mid-single-digit growth (in constant currency) in each of the past four quarters. Comparisons get tougher in the 2nd half, however, as Insight was not a major beneficiary of the 1H14 PC upgrade cycle." Alexander expects spending patterns at large enterprise customers to be "lumpy."

Insight's revenue growth is expected to reach 4.5 percent in 2Q, but this could decelerate to less than 2 percent in the back half of this year. Europe contributes 30 percent of the company's revenue, and the region "may have experienced inflated demand in 1Q due to anticipation of price increases related to forex movement."

"Following a return +20% year to date, NSIT is trading at or near five-year highs on nearly every core metric," Alexander commented, while adding, "We actually estimate that Insight will outgrow CDW on an EPS basis in 2016 for the first time in several years. However, when we compare both companies' valuations to their respective growth profiles, shares command a similar multiple."