Future AI And Data Projects Like Cricket Australia Will Expand Higher-Margin Technology Services

Key Takeaways

• Anticipated device refresh and focus on emerging technology services are likely to boost hardware and high-margin solution revenues.
  
• Aligning cloud offerings with key partnerships aims to stabilize and grow cloud revenue while enhancing operating margins.
  
• Changes in partner programs and macroeconomic caution may challenge revenue, with increased financing costs and tariffs further straining net earnings and pricing strategies.

Catalysts

Provides information technology, hardware, software, and services in the United States and internationally.

• Insight Enterprises anticipates a significant hardware device refresh cycle in 2025–2026, expected to boost hardware revenue as corporate and large enterprise clients upgrade aging devices.
  
• The company is aligning cloud services with program changes, particularly with Microsoft and Google, to target the mid-market segment, aiming to stabilize cloud revenue and counter recent impacts from partner agreement shifts.
  
• Structural improvements and cross-sell initiatives are expected to drive profitability and expand net margins, particularly in services and cloud offerings.
  
• Insight's focus on AI and data solutions, exemplified by projects like Cricket Australia, highlights growth potential in emerging technology services, likely contributing to increased revenue from higher-margin solutions.
  
• The company plans to leverage partnerships with leading tech companies and hyperscalers, aiming for growth through expanded cloud, AI, and cybersecurity solutions, which should enhance revenue and operating margins by capitalizing on market demand.

Insight Enterprises Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Insight Enterprises's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 3.1% in 3 years time.
• Analysts expect earnings to reach $307.5 million (and earnings per share of $7.91) by about March 2028, up from $249.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.0x on those 2028 earnings, up from 19.8x today. This future PE is greater than the current PE for the US Electronic industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 2.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.99%, as per the Simply Wall St company report.

Insight Enterprises Future Earnings Per Share Growth

Risks

• The transition and pivot required due to partner program changes, specifically with Microsoft and Google, may pose a substantial headwind, potentially impacting cloud-related revenue throughout 2025.
  
• The ongoing caution in client spending due to the macroeconomic environment could lead to further delays in expected device refresh cycles, impacting hardware revenue and potentially extended over 2025 and into 2026.
  
• The increase in interest expense due to the settlement of convertible notes could negatively impact net earnings, as higher borrowing costs arise from using the ABL facility and thus increasing financing costs.
  
• Despite the ongoing improvements and actions around SG&A reductions, operating expenses related to acquisitions and other onetime items are expected to press against net margin improvements.
  
• Current tariffs and any potential increases might affect pricing strategies and consumer demand elasticity, posing revenue risks if cost increases cannot be effectively passed onto clients.

Valuation

• The analysts have a consensus price target of $202.02 for Insight Enterprises based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $235.0, and the most bearish reporting a price target of just $186.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.9 billion, earnings will come to $307.5 million, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 8.0%.
• Given the current share price of $155.42, the analyst price target of $202.02 is 23.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.