Synnex Corp.: The Price Is Right for This Growth Machine
Synnex Corp. (NYSE:SNX) is a well-respected technology company whose stock has climbed considerably in the last five years. This stock caught my eye after delivering stellar quarter-over-quarter results, and I think you should have this company on your radar. Synnex provides distribution and business process outsourcing (BPO) services to resellers, retailers, and original equipment manufacturers (OEMs), primarily in North America. It operates in two segments, Distribution Services and Global Business Services (GBS).
For revenue-reporting purposes, the company is broken into technology services and Concentrix segments. Synnex competes primarily with Tech Data Corp. (NASDAQ:TECD) and Arrow Electronics (NYSE:ARW) for business. What is interesting to note is that Synnex is more expensive thatn both Tech Data and Arrow Electronics on a price-to-earnings multiple. Tech Data trades at 13.9 times earnings and Arrow Electronics trades at 14.6 times earnings, but Synnex trades at 21.8 times earnings. However, it seems that Synnex growth potential may be greater than both Tech Data and Arrow Electronics.
Synnex has two main sets of operations. With the original nomenclature, the Distribution Services segment distributes information technology (IT) products, such as IT systems, peripherals, system components, software, networking equipment, consumer electronics, and complementary products to value-added resellers, system integrators, and retailers. This segment also offers data center server and storage solutions, as well as contract assembly services including systems design, build-to-order, configure-to-order, and assembly capabilities. It also offers value added services comprising kitting, reconfiguration, asset tagging, and hard drive imaging.
The GBS segment provides BPO services like customer management, renewals management, back office processing, and IT outsourcing through voice, chat, Web, email, and digital print. The company also provides logistics services consisting of outsourced fulfillment, virtual distribution, and direct ship to end users, financing services comprising net terms, third-party leasing, floor plan financing, letters of credit backed financing, marketing services, and online and technical support services. The stock is down about 5 percent at the time of this writing, but the most recent quarterly earnings were strong.
Overall, the company reported revenue of $3.454 billion in the last quarter, a 33.3 percent rise over the $2.591 billion in the prior-year quarter. Operating income rose 31 percent to $68.1 million. This translated to a diluted earnings per share of $1.01, a 24.7 percent increase over the prior year’s 81 cents. On a Non-GAAP basis, earnings were $1.52 per share, a whopping 81 percent increase over the prior-year quarter’s 84 cents.
How did each segment perform? Well, the Technology Solutions segment saw revenue of $3.16 billion, up 24.2 percent from the prior fiscal year quarter. Adjusting for the translation effect of foreign currencies, primarily the yen and the Canadian dollar, the Technology Solutions business grew approximately 26.1 percent. Technology Solutions income before non-operating items, income taxes, and non-controlling interest was $70.1 million, or 2.22 percent of segment revenue, compared with $48.7 million, or 1.91 percent of segment revenue, in the fiscal second quarter of 2013. Strong growth indeed.
In the Concentrix segment, revenue was $293.5 million, up from $46.7 million over the prior-year quarter due largely to the recently acquired IBM CRM business. Concentrix loss before non-operating items, income taxes, and non-controlling interest was $2.2 million, or (0.74 percent) of Concentrix revenue, compared with income of $3.3 million, or 6.99 percent of Concentrix revenue, in the prior-year quarter. Non-GAAP Concentrix income before non-operating items, income taxes, and non-controlling interest was $27.8 million, or 9.48 percent of Concentrix revenue, for the fiscal second quarter of 2014, compared to $4.3 million, or 9.12 percent of Concentrix revenue, in the prior-year period.
Kevin Murai, president and CEO, said in a press release: “I am pleased to report another quarter of strong results. Excellent growth and leverage in Technology Solutions and steady progress in the integration of the IBM CRM business led to results ahead of our expectations.”
Looking ahead, is the stock a buy? For the next quarter, revenue is expected to rise to the range of $3.3 billion to $3.4 billion, another large gain from last year. Non-GAAP net income is expected to be in the range of $56.9 million to $58.9 million, whereas Non-GAAP diluted earnings per share are expected to be in the range of $1.45 to $1.50. Trading at a slight premium to the market at 21.8 times earnings, I think the stock is attractively priced given its year-over-year growth. Thus, I recommend a buy as the price is right under $70 per share to get long.
Disclosure: Christopher F. Davis holds no positions in any stocks mentioned and has no intention of initiating a position in the next 72 hours. He has a buy rating on Synnex Corp. and an $80 price target.