ValueAct’s Morfit sees Insight Enterprises stock surging as cloud computing grows

By Svea Herbst-Bayliss

NEW YORK (Reuters) – Insight Enterprises (NASDAQ:) Inc, which helps clients with the critical but largely unsung work of digital transformation, is poised for a dramatic stock price jump as its revenue stream becomes more predictable, investment firm ValueAct’s chief executive said.

Mason Morfit, the firm’s chief executive and chief investment officer, said the company’s stock price, currently trading at $87.63, could climb to as high as $500 a share in the next five years.

“We find companies that have the opportunity to transform into global champions by becoming better aligned with the mega trends in the economy, whether that’s cloud computing, streaming television, or medical technologies, and the list goes on and on,” Morfit said during a presentation at the 13D Monitor Active-Passive Investor Summit.

The company has a healthy business and works in the growing cloud computing segment, two factors that should help distinguish it, he said, adding that Insight trades around 10 times earnings and generates a 9% free cash flow yield with growth in the high teens. This “presents a great return opportunity without any multiple expansion,” he said.

ValueAct, which traditionally owns roughly a dozen companies and distinguishes itself from other activists by preferring to stay behind the scenes, rarely presents its investment ideas publicly. Morfit said he was speaking out about Insight because it is broadly overlooked by the market.

It is not widely covered by Wall Street analysts and has been lumped with companies like DXC Technology rather than Accenture (NYSE:) Plc which is a more appropriate peer, he said.

As Insight helps transform its partner companies, it is also transforming itself having hired a new chief executive earlier this year and having changed the bulk of senior management.

For ValueAct, betting on the megatrend of digital transformation started when Morfit had a board seat at Microsoft (NASDAQ:) years ago.

While conventional wisdom might have suggested that companies like Insight could wither in the shadow of giants like Microsoft, this has not been the case as even Microsoft has sought partners with this specialized expertise, he said. There is a “huge opportunity for the vendors to have partners that can make their services come alive.”

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