What Could Get Comdisco Dancing

No, Comdisco is not a discotheque. It's an enterprise that moves to the less-entertaining beat of buying, selling, and leasing new and used computers as well as medical equipment. The recession crimped business as mainframe computer sales and the leasing of new equipment slowed. But with the economy on the rise and earnings rebounding, some money runners are buying into Comdisco.

"These pros are now looking for the classic cyclical and earnings-turnaround plays, as the Dow keeps climbing to new highs," says one money manager who has been buying shares. The stock jumped to 20 after trading as low as 14 in early August. And management, which has been repurchasing shares, recently authorized another buyback worth $25 million--a sure way of enhancing per-share earnings.

Officers and directors already hold about 29% of Comdisco's 39 million shares outstanding, of which 24% is owned by Chairman and President Ken Pontikes. While Pontikes undergoes treatment for colon cancer, board member Jack Slevin has been named interim head of the office of the president. Pontikes is scheduled to return to work by mid-January.

BRIGHT PICTURE. One pro says that Pontikes may now wish to sell his huge position or at least part of it. Such a move could precipitate some activity in the stock. "With that possibility, plus all the good things going for Comdisco--including a low price-to-book ratio, modest price-earnings multiple, and the recent rebound in earnings--the stock is bound to pop," says the money manager. He says it will hit 30 this year based alone on the improving earnings growth.

"Overall profit margins should continue to widen as the company recognizes greater profits from older computers and equipment that are being re-leased," says Sam Dedio, an analyst at Standard & Poor's. He expects revenues for the year ending Nov. 30 to remain flat due to the lower volume in initial leases of mainframe computers. But that will be offset by gains in its medical-equipment business, he adds.

Analyst Mike Lloyd at NatWest Securities says that despite the drop in mainframe prices, "we now have confidence in Comdisco's ability to generate earnings gains of at least 11% over the next few years." Cost reductions and lower interest expenses will boost profits in fiscal 1994. He sees earnings climbing from $1.97 in 1993 to $2.20 a share in 1994 and to $2.45 in 1995.