Plantronics Inc: Why This $37 Stock Is Worth at Least $85

Plantronics Inc (NYSEPLT) Why the $37 Stock Is Worth at Least $85
iStock.com/Surasak Suwanmake

Plantronics Inc Is Dirt Cheap & at a Major Discount 

For all you bargain hunters out there, I may have the perfect small-cap tech stock: Plantronics Inc (NYSE:PLT). Its shares are currently dirt cheap, and they could easily double in price.

PLT stock is up 13.2% this year but down 34.6% over the past year and down more than 50% from its record high. The weakness in Plantronics stock provides an average-risk opportunity.

The company focuses on the high-prospects unified communications solutions segment. Plantronics offers video and conferencing solutions to companies and call centers, along with sales to consumers.

Its markets include the Americas, Europe, the Middle East, Africa, and Asia Pacific.

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The game-changing move for Plantronics was in July 2018, with the acquisition of Polycom in a deal worth $2.0 billion. (Source: “Plantronics Completes Acquisition of Polycom,” Plantronics Inc, July 2, 2018.)

The acquisition added around $800.0 million in revenues. Given the accretion, you would think that PLT stock would be worth more than the current $1.5 billion in market cap.

The below Plantronics stock chart shows its price breaking above the downtrend resistance and holding support. A sustained move could see the stock move back to the target area.

Chart courtesy of StockCharts.com

My Bullish Thesis for PLT stock 

A glance at the five-year revenue picture for Plantronics Inc shows flat results from fiscal 2015 to fiscal 2018, prior to recording a near-double in fiscal 2019, largely due to the addition of Polycom.

Fiscal Year Revenues (Millions) Growth
2015 $861.4
2016 $849.1 -1.4%
2017 $877.1 3.3%
2018 $861.6 -1.8%
2019 $1,670 93.9%

(Source: “Plantronics Inc.MarketWatch, last accessed October 22, 2019.)

Going forward, the key will be the successful integration of Polycom into Plantronics.

The combined company is expected to ramp up its revenues by 16.3% to $1.95 billion in fiscal 2020, followed by a decline in the growth rate to four percent to $2.02 billion in fiscal 2021. (Source: “Plantronics, Inc. (PLT),” Yahoo! Finance, last accessed October 22, 2019.)

Meanwhile, Plantronics delivered positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in five straight years, setting a record in fiscal 2019.

Fiscal Year EBITDA (Millions) Growth
2015 $155.9
2016 $140.1 -10.2%
2017 $148.8 6.2%
2018 $153.0 2.9%
2019 $188.9 23.5%

(Source: MarketWatch, op. cit.)

A look at profits based on generally accepted accounting principles (GAAP) shows a divergence.

Plantronics reported GAAP earnings-per-share (EPS) losses in fiscal 2018 and fiscal 2019 after three consecutive years of profitability.

Fiscal Year GAAP Diluted EPS Growth
2015 $2.63
2016 $1.96 25.5%
2017 $2.51 28.1%
2018 -$0.03 -101.2%
2019 -$3.61 -11,927%

(Source: MarketWatch, op. cit.)

On an adjusted basis, accounting for the acquisition of Polycom, PLT earned $5.12 per diluted share in fiscal 2019. This is estimated to rise to $5.73 in fiscal 2020 and $6.44 in fiscal 2021. (Source: Yahoo! Finance, op. cit.)

The purchase of Polycom significantly increased Plantronics Inc’s debt load to $1.7 billion as of the end of June. (Source: Yahoo! Finance, op. cit.)

High debt means heavy financing charges, but Plantronics should be safe for now, given the revenue and profitability growth.

Moreover, PLT produced positive free cash flow in five straight years, which will allow for financial flexibility.

Fiscal Year Free Cash Flow (Millions) Growth
2015 $132.5
2016 $116.2 -12.3%
2017 $116.2 0%
2018 $108.7 -6.5%
2019 $89.3 -17.9%

(Source: MarketWatch, op. cit.)

Analyst Take

Plantronics Inc has strong institutional support, with 266 institutions holding 98.8% of the outstanding shares. (Source: Yahoo! Finance, op. cit.)

Insiders have also been buying the stock, which adds confidence.

PLT stock’s valuation suggests a cheap situation. The stock trades at only 5.8 times its consensus fiscal 2021 EPS.

The stock’s price/earnings to growth (PEG) ratio of 0.44 is extremely cheap. If we expand the PEG to a fair value of 1.0, this would imply a potential price of $85.00 for Plantronics stock, which would be just above the high of $82.28 in July 2018.