TD
SYNNEX (SNX, $101.59): “Not Ready to be Shipped Yet”
By: Chris
Deneweth, AIM Student at Marquette University
Disclosure:
The AIM Small-Cap Equity Fund currently holds this position. This article was
written by myself, and it expresses my own opinions. I am not receiving
compensation for it, and I have no business relationship with any company whose
stock is mentioned in this article.
Summary
- TD SYNNEX Corporation. (NYSE:
SNX) engages in the distribution, logistics, and integration of
technology hardware, software, and services.
- SNX
is now a Rittal channel partner and will begin to distribute Rittal’s
products.
- SNX’s
new capital allocation framework.
- SNX
has announced that they have made their long-awaited return to conventions.
- SNX is
expected to beat estimates and have experienced a revenue growth rate of
73.1% LTM.
Key
points:
When the stock was pitched in December
of 2021, SNX had recently acquired Tech Data. This was a major driver of the
stock, as well as a major risk. It was one of the first times that CEO Rich
Hume had done an acquisition. As we look back on how Hume and SNX’s C-Suite
dealt with this acquisition, we can notice that they knocked it out of the
park. The company had a 5-yr CAGR of around 16%. Q4 of 2021 had a YoY growth of
110.6%, with Q1 of 22 posting an even more impressive YoY growth of 213.2%. It
is safe to say that SNX’s management team is fit to continue to grow this
company to new heights with new partnerships
Announced on April 18, 2022, SNX
has partnered with Rittal. Rittal is a global manufacturer and systems solution
provider of industrial and IT enclosures. This partnership will be very
beneficial, as Rittal now gets a world-class company to help deliver their
products, while SNX received more orders to deliver their best-in-class
products. This partnership also allows SNX to provide a wider variety of
products, so that they can continue to deliver products that are relevant in
this ever-changing IT landscape. This partnership will also increase brand
recognition for both companies, allowing them to steal market share from their
competitors.
In the last two earnings calls,
management has been very excited to talk about their new capital allocation
framework. This framework is focused around two main objectives. The first objective
is to continually increase their dividends paid out. They reinstated their
dividend payouts in Feb 2021, with a dividend per share of $.20. They were able
to increase their dividend to $.30 per share for Q1 of 22. They plan to
continue to grow their dividends year after year. The second objective is to
continue to repurchase shares. Their goal for 2022 is to repurchase $100
million in shares. They have already repurchased $25 million in Q1 of 22. This
new capital allocation framework will continue to drive the stock price up in
the future.
As SNX has slowly started to
bring employees back to work, they continue to be very cautious about COVID-19.
SNX has not been to a convention in over 2 years. As Tampa Bay’s largest public
company, their first convention drew hundreds of in-person vendors and
partners. Some of these attendants included people from Microsoft, Google,
Intel, and Dell. This is also the first time that TD SYNNEX has done a public
event since their merger with Tech Data.
What
has the stock done lately?
In the
past 6 months, SNX has remained relatively stable, with a decrease of about 3%.
When put into comparison with the Russell 2000, SNX has outperformed the index
by over 10%. The markets have taken a huge hit recently due to rising interest
rates and inflation.
Past
Year Performance:
SYNNEX (now TD SYNNEX after
merger) entered into a $5 billion credit facility a year ago. They were
preparing to acquire Tech Data. Management knew that they would face initial
headwinds with this merger, which has led to a decrease in stock price of
19.19% over the past year. With management stating that they have made good
progress on the realization of the merger, I do not see this negative
performance to be a sign to get out. SNX is beginning to position itself for an
exponential growth period.
My
Takeaway
With such volatility in the
markets, SNX has been able to remain relatively flat. With SNX being a distributor,
they have also been facing the supply chain issues seen globally. They have
been able to still bring in an increasing number of sales each year. Management
does not see this to stop any time soon, as they are getting close to realizing
the full synergy that the Tech Data acquisition has to offer. While continuing
to incorporate Tech Data, SNX has been able to make strategic moves, such as
their Rittal partnership. SNX can enter more partnerships like this one as they
begin to attend more conventions. As they join into more partnerships and
continue to go to more events, they keep increasing their total addressable
market. As they continue to grow, management maintains a strong balance sheet,
with increasing dividends and share repurchases. It is my recommendation that
SNX remain in the AIM small cap portfolio.
