EPlus (PLUS) Outperforms Q4 Estimates: A Margin-Driven Turnaround Signals Value

EPlus (PLUS) delivered a standout Q4 2024 earnings report, defying market headwinds with a 15.9% jump in diluted EPS to $0.95 and a 19.1% surge in Adjusted EBITDA to $43.8 million. While revenue dipped 10.2% to $498.1 million, the margin expansion to 29.3%—a 580-basis-point improvement from the prior year—signals a strategic pivot toward higher-margin services that could redefine the company’s growth trajectory. This article dissects the financial catalysts, valuation discounts relative to peers, and risks to argue why PLUS is a contrarian buy at current levels.

Margin Expansion: The Key to Sustainable Profitability

The Q4 results highlight a stark shift in EPlus’s business model. While product sales fell 17.8% due to softness in networking and collaboration hardware, service revenues skyrocketed 33%, driven by the Bailiwick Services acquisition (professional services up 48.4% to $60.4 million) and growth in cloud-based managed services (up 16.6%). This mix shift allowed gross margin to expand to 29.3%, the highest in recent history, and pushed operating cash flow to a robust $389.4 million.

The company’s focus on recurring revenue streams—subscription and ratable models now comprising 40% of services revenue—creates a more predictable income profile. CEO Mark Curell emphasized this in the earnings call: "We’re transitioning from a product-centric model to a solutions-and-services company, which inherently offers better margins and customer retention."

Valuation: A Discounted Gem in a Growth-Fueled Sector

At a trailing P/E of 16.22 (vs. a 10-year average of 15.79), EPlus trades at a 40% discount to its peers like CDW (P/E 21.7) and Synnex (P/E 17.94). Even more compelling is its PEG ratio of 1.43, which aligns with its 10%+ annual earnings growth outlook—making it fairly priced relative to its growth rate.

While Microsoft (P/E 33.06) and Oracle (P/E 42.5) command premium multiples due to their cloud dominance, EPlus’s niche in mid-market IT solutions—particularly in healthcare (up 14.8% in Q4) and cloud security—offers a lower-risk entry point into a $1.2 trillion IT services market.

Catalysts for 2025 and Beyond

1. Services Dominance: With Bailiwick’s integration complete, EPlus aims to grow professional services revenue by 20% in 2025, leveraging its 272 new customer-facing hires.
2. Market Expansion: Healthcare and cloud security—markets with 8–10% annual growth—are now 30% of total revenue, up from 20% in 2023.
3. Balance Sheet Strength: $389 million in cash and a debt-to-equity ratio of 0.13 provide flexibility for acquisitions or share buybacks.

Risks to Consider

• Product Declines: Networking and collaboration hardware sales remain weak, with no clear turnaround in sight.
• Margin Pressures: Bailiwick’s integration costs and competitive pricing in services could limit margin expansion.
• Economic Downturn: A recession could delay IT spending, though EPlus’s focus on essential services (e.g., healthcare IT) offers some insulation.

Buy Recommendation: Target $90 by May 2026

With a 12-month price target of $90 (37% upside from the May 2025 $66.00 price), EPlus offers asymmetric risk-reward for investors willing to bet on its margin-driven turnaround. The stock’s 1.12 beta suggests it will outperform in a rising market, while its peer-discounted valuation leaves room for multiple expansion.

Strategic Entry Point: Accumulate positions at sub-$70 levels, with a stop-loss below $60.

Conclusion

EPlus’s Q4 results mark a critical inflection point: a services-led model is delivering margin resilience and cash flow visibility. While risks linger, the 14% upside to the peer average P/E and its $1.73 billion market cap’s growth runway make this a compelling contrarian buy. For investors seeking a leveraged play on IT services’ secular shift, PLUS is primed to outperform.

Investment thesis: Buy now for a 12-month target of $90. Risks are manageable; reward is asymmetric.