This report was originally published on 1/27/10.

After the close today, ARP (7.65 ↓1.80%) issued a press release indicating that the company now expects to beat its prior revenue and EPS guidance for 4Q09.  You can read the full release here.  Management did not specifically identify the sources or magnitude of revenue upside.  The company has increased its full year guidance for EPS from $0.27-$0.33 to $0.35-$0.38.  This implies that the company generated EPS of $0.00-$0.02 for the fourth quarter compared to current consensus for a loss-per-share of ($0.06).  This is consistent with our current 4Q09 EPS estimate of $0.01.  Our EPS estimate is based on a revenue forecast of $111.7 million, compared to current consensus of $102.2 million.  We think it is reasonable to assume ARP generated revenues of $110-$115 million for 4Q09.

Approximately one week ago we issued a report which highlighted the results of our most recent survey of independent reprographers.  In our report, we argued that current street consensus estimates for both 4Q09 and all of 2010 were too low.  Today’s press release from ARP adds further credence to our thesis that revenue trends in the reprographics industry might have found a tentative and tenuous bottom.  As a reminder, we currently forecast revenues and EPS of $479.9 million and $0.37, respectively for 2010, compared to consensus of $441.2 million and $0.10.

The setup for ARP shares for 2010 appears to be favorable. In our view, estimates are more or less “washed out” and the stock does not yet reflect what appears to be growing signs of stability in ARP’s end-markets.  At 5.7x and 15.7%, ARP shares remain remarkably compelling on an EV/EBITDA and free-cash-flow yield basis.  In our view, we think ARP shares can trade as high as 20-25x FY10 EPS (similar to the current valuations for CBG (14.03 ↑1.45%), JLL (67.87 ↑1.74%), and ADSK (29.19 ↑0.55%)) to the extent that a stabilization in the company’s revenues becomes apparent.  At 7.5x our FY10 EBITDA estimate or at a 10% yield on our FY10 free cash flow estimate of $48 million, ARP shares would trade north of $10.

As always, please act accordingly…