InformationWeek

Comdisco Is Poised To Profit From Disaster

By William Schaff

omdisco Inc. is well known as the one of the largest independent technology leasing companies. The company doesn't get as much attention for some of its other services, since almost 85% of Comdisco's revenue comes from leasing activity. But that figure may drop to below 75% by year's end if its other business lines grow as expected. What other businesses? Comdisco is the largest provider of disaster-recovery services, and it recently started a Millennium Testing Service (MTS), to name two.

The Rosemont, Ill., company's technology-leasing business hit $2.6 billion in revenue in 1996, and could top $3 billion this year. Distributed systems, mainframes, telecommunications, and electronic equipment represent much of the volume.

Less publicized is the Comdisco Disaster Recovery Services group (CDRS). Any IS manager who has had to deal with a major loss will understand the value of these services. I recently witnessed a major transformer explosion, which shut down a building next to mine for two days. No one could get in. It made me look over my company's disaster plan again.

Lining up alternative data processing sites in case of unforeseen events has become critical to clients' long-term survival strategies. Is it any wonder the outlook for Comdisco's disaster recovery division is so strong? This business generated almost 15% of the company's 1996 revenue, more than 22% of its total 1996 pretax operating profit, and had the best pretax operating margins (12.8%) of any division within the company.

Comdisco also offers bundled services, including asset management, systems integration, and network management. Add the new MTS to the mix, and Comdisco offers several fee-based services that are capable of generating strong growth and more stable operating income.

Comdisco's biggest business risks: corporate capital equipment purchase cycles, potential deceleration of demand for mainframe leasing-which still comprises roughly 30% of new leases-and resale of leased equipment. The move to fee-based services will help buffer the downside.

The company should earn $1.53 per share during fiscal 1997, ending Sept. 30. I see earnings per share growing about 15% into 1998. Given its strong earnings track record-20 consecutive quarters of earnings growth-and the shift to more stable growth, Comdisco represents a reasonable value in today's market.

William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco, which manages the InformationWeek 100 list. Reach him at bschaff@bayisle.com .

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