Leading global distributor and solutions aggregator for the IT ecosystem, TD SYNNEX Corporation (SNX), reported its first-quarter results on March 26, 2024. The company surpassed the consensus EPS estimates. In this piece, I have looked into its fundamentals to deduce whether it is a potential buy or not.
SNX’s EPS was 5.2% above the consensus estimate for the quarter. The company continued its stellar earnings history, beating the consensus EPS estimate in three of the trailing four quarters.
Rich Hume, CEO of SNX, said, “We generated strong results in our fiscal first quarter, driven by our expansive portfolio and an improving IT demand environment. This resulted in record margins, EPS at the upper end of our expectations, healthy free cash flow, and robust capital returned to shareholders,"
Further, the company demonstrated robust financial performance by returning $235 million to shareholders in the form of share repurchases and dividends, representing a substantial 59% increase from the prior fiscal first quarter.
Looking ahead, the company’s BOD has authorized a share repurchase program of up to $2 billion of its common stock, supplementing the existing program with approximately $197 million remaining.
The stock has soared 25% over the past nine months and 13.7% over the past month.
Here’s what could influence SNX’s performance in the upcoming months:
Robust Financials
During the fiscal first quarter ended February 29, 2024, SNX generated revenue of $13.98 billion. Its operating income rose 1.5% year-over-year to $302.57 million. The company’s non-GAAP net income stood at $266.22 million.
Its non-GAAP EPS improved 2% from the prior-year quarter to $2.99. SNX reported a free cash flow of $343.62 million, compared to a negative free cash flow of $140.07 million in the year-ago quarter.
Regional Contribution and Outlook
During the first quarter, SNX’s non-GAAP gross billings were $19.3 billion, and its gross margin was 7.2%, compared to 6.6% in the prior-year quarter. Moreover, revenue distribution varied across regions.
The Americas contributed $7.90 billion, constituting approximately 55% of total revenue. Meanwhile, Europe accounted for $5.10 billion, representing approximately 35% of total revenue. In the Asia-Pacific and Japan region, revenue amounted to $955 million, making up approximately 10% of total revenue.
In the upcoming fiscal 2024 second quarter, SNX anticipates revenue between $13.30 billion and $14.90 billion, with non-GAAP gross billings expected to range from $18.40 billion to $19.60 billion. Non-GAAP net income is estimated to fall between $219 million and $263 million, with non-GAAP EPS ranging from $2.50 to $3.
Stable Dividend Policy
SNX recently declared a quarterly cash dividend of $0.40 per common share, payable on April 26, 2024. The company pays an annual dividend of $1.60, which yields 1.38% on the current market price, higher than its four-year average dividend yield of 0.95%. The company has raised its dividend payouts at a CAGR of 94.5% over the past three years.
Impressive Analyst Estimates
SNX’s revenue is projected by analysts to rise marginally year-over-year to $14.17 billion in the fiscal second quarter ending May 2024. Its EPS for the same period is anticipated to increase 16.2% year-over-year to $2.82.
Further, in the fiscal year ending November 2024, analysts expect SNX’s EPS and revenue to rise 6.4% and 1.1% year-over-year to $11.98 and $58.21 billion, respectively.
Robust Profitability
SNX’s trailing-12-month ROCE, ROTC, and ROTA of 7.72%, 6.47%, and 2.27% are 162.9%, 177%, and 64.8% higher than the respective industry averages of 2.94%, 2.34%, and 1.38%. Furthermore, the stock’s 1.98x trailing-12-month asset turnover ratio is 224% higher than the industry average of 0.61x.
Discounted Valuation
In terms of forward non-GAAP P/E, SNX’s 9.68x is 61.4% lower than the 25.11x industry average. Its 0.22x forward EV/Sales is 92.4% lower than the 2.93x industry average. The stock’s forward P/S multiple of 0.17 is 94.1% lower than the 2.86 industry average.
Solid Historical Growth
SNX’s revenue has grown at a 39.4% CAGR over the past three years and a 22.4% CAGR over the past five years. Its EBITDA has grown at a 41.5% CAGR over the past three years.
POWR Ratings Show Promise
SNX’s POWR Ratings reflect its bright outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SNX has a B grade for Growth, which corresponds to its impressive performance in the recent quarter. Its B grade for Value is consistent with its discounted valuation.
SNX’s stock is trading above its 50-day and 200-day moving averages of $103.49 and $99.87, respectively, indicating an uptrend and justifying its B grade for Momentum. Moreover, its optimistic analysts’ estimates align with its B grade for Sentiment.
SNX is ranked #9 out of 81 stocks in the Technology - Services industry.
Click here to access SNX’s Stability and Quality ratings.
Bottom Line
The significant uptick in shareholder returns indicates the company's strong cash flow generation and profitability. It reflects the SNX's commitment to rewarding investors and underscores its financial strength and stability. Moreover, considering its solid fundamentals, attractive valuation, and positive momentum, now might be an ideal time to invest in the stock.
How Does TD SYNNEX Corporation (SNX) Stack Up Against Its Peers?
While SNX has an overall grade of B, equating to a Buy rating, you may also want to check out these other A-rated (Strong Buy) stocks within the Technology - Services industry: LiveRamp Holdings, Inc. (RAMP), Leidos Holdings Inc. (LDOS), and Teradata Corporation (TDC).
To explore more Technology - Services stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SNX shares were trading at $113.35 per share on Thursday afternoon, down $2.65 (-2.28%). Year-to-date, SNX has gained 5.74%, versus a 10.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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