This supply chain technology company just posted earnings per share of $0.32, three cents above estimates, and also revised revenue guidance to a range of $479-$481 million, above consensus estimates.
Manhattan Associates (MANH)
From 100% Letter
Manhattan Associates (MANH) is a $2.4 billion market cap company that specializes in supply chain commerce solutions. Its customers are retailers, wholesalers, manufacturers and governments, including Adidas, Cabela’s (CAB), Under Armour (UA), Papa John’s Pizza (PZZA), O’Reilly Auto Parts, Vera Bradley (VRA) and Columbia Sportswear (COLM).
Supply chain efficiency is absolutely critical in our internet enabled world—so much so that many companies build their entire business models around it.
At least four growth catalysts should keep shares of MANH moving higher into 2015, and ultimately reward us with another double within the next 18 months.
Catalyst #1: Industry Trends Mean Supply Chain Software A “Must Have”. Manhattan helps clients by integrating brick-and-mortar, catalog, website and mobile operations, an omni-channel experience. It coordinates order fulfillment from the manufacturer to distributors and transportation providers and ultimately on to the customer.
Catalyst #2: Subscription model means sustainable long-term growth. Both license and professional services revenues tend to be reoccurring revenue streams. They are like a royalty—repeat customers keep on paying.
Around 90% of customers who subscribe to software and support tend to renew every year. MANH has averaged 12% revenue growth over the past 3 years, and 8% over the past 10 years. And at the end of the last quarter management raised its revenue growth estimate for 2014 to 14%-15%.
Catalyst #3: Fat Margins Mean Consistently Profitable. MANH has world class gross margins that hover around 57%. So the company is consistently profitable. Net income growth has averaged 34% over the past 3 years and 31% over the past 5 years.
Management recently raised earning guidance, suggesting we should look for 20% to 22% earnings growth in 2014.
Catalyst #4: Cash Cow Means Options To Grow Business And Reward Shareholders. In 2013, cash flow margin was 20%, which means that for every $100 of sales MANH had $20 left over.
In the last quarter, MANH repurchased over $25 million worth of its own stock. And the Board of Directors approved another $50 million worth of share repurchases.
Even in a relatively slow growth economy MANH is growing both in terms of revenue and profitability. MANH has a stable customer base that should continue to pay it “royalties” for years, even while it adds new clients.
Buy Manhattan Associates (NASDAQ:MANH) at around $33.10.
Tyler Laundon, The 100% Letter, 100percentletter.wyattresearch.com, 866-447-8625, October 15, 2014