A month has gone by since the last earnings report for Synnex (SNX). Shares have added about 14.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Synnex due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
SYNNEX’s Q1 Earnings & Revenues Top Estimates
SYNNEX delivered stellar first-quarter fiscal 2021 results, wherein the top and bottom lines surpassed the respective Zacks Consensus Estimate and marked year-over-year improvements as well. The company’s fiscal first-quarter non-GAAP earnings of $1.89 per share topped the Zacks Consensus Estimate of $1.63 and improved 33.1% year over year.
Revenues grew to $4.94 billion from the year-earlier quarter’s $4.08 billion. The top-line figure also beat the Zacks Consensus Estimate of $4.71 billion.
Strong demand for the company’s technology products and services drove the top line. Moreover, steady recovery in the IT spending environment on the back of rapid digital transformation was a positive.
Merger With Tech Data
Importantly, SYNNEX also announced that it has entered into a definitive agreement to merge with technology solutions provider, Tech Data. The $7.2-billion transaction is expected to close in the second half of 2021.
Notably, adjusted EBITDA is expected to be approximately $1.5 billion and combined debt is anticipated to be approximately $4 billion at the time of the close of the transaction.
Non-GAAP earnings per share are expected to increase more than 25% in the first year after the close of the deal, with further accretion expected in the second year. Also, the combined company expects to generate net optimization and synergy benefits of $100 million in the first year after closing and achieve at least $200 million by the end of the second year.
SYNNEX’s shareholders are expected to own approximately 55% of the combined company and Apollo Funds are expected to own approximately 45%.
Further, the company stated that it has split its Concentrix business into a separate publicly-traded company on Dec 1, 2020. With this separation, SYNNEX is now left with its Technology Solution business. The separated business has been named Concentrix Corporation. Management believes this strategic action would help add shareholder value and enhance the company's competitive edge.
To reflect the separation, data from the prior-year quarter have been adjusted in order to make more accurate year-on-year comparisons.
Gross profit grew 19.4% year over year to $304.6 million, while margin contracted 10 basis points (bps) to 6.2%. Total selling, general & administrative (SG&A) expenses increased to $162.8 million from the year-ago quarter’s $154.7 million.
In the reported quarter, non-GAAP operating income was up 35% to $156 million. Also, non-GAAP operating margin expanded 33 bps on a year-over-year basis to 3.16%.
SYNNEX ended the fiscal first quarter with cash and cash equivalents of $1.44 billion compared with $1.41 billion witnessed at the end of the fiscal fourth quarter.
During the fiscal first quarter, the company generated $25 million of cash flow from continuing operations and $20.7 million of free cash flow from continuing operations.
Additionally, the company announced that its board of directors declared a quarterly cash dividend of 20 cents per share. The newly-approved dividend will be payable on Apr 30 to shareholders of record as of Apr 16, 2021.
For the second quarter of fiscal 2021, revenues are expected between $4.7 billion and $5 billion.
Non-GAAP net income is estimated in the range of $94.9-$105 million. Moreover, the company projects non-GAAP earnings between $1.80 and $2 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.04% due to these changes.
At this time, Synnex has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Synnex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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