RayJay: Synnex Concerns Brushed Aside By Strong Q1

SYNNEX Corporation (NYSE: SNX) reported healthy first-quarter results Wednesday, with in-line revenue and EPS upside.

Although the company achieved cost synergies ahead of schedule, this was not the only driver of upside, and execution in the increasingly important services business continued to be strong, according to Raymond James.

The Analyst

Raymond James’ Adam Tindle maintained a Strong Buy rating on Synnex Corp. with an unchanged $140 price target.

The Thesis

Revenue generation by both Concentrix and Convergys grew in the first quarter, which was the first full quarter following their integration, Tindle said in a Wednesday note. 

Both businesses have margins close to 10 percent ex-cost-synergies, the analyst said. 

The IT supply chain services company achieved around 100 percent conversion of net income to cash flow, according to Raymond James. 

The concerns surrounding Synnex's spend on the Convergys acquisition; margin pressure due to declining business process outsourcing industry fundamentals; and the company’s financial results being driven by “black box accounting numbers” seem to be unfounded based on the performance that was reported Wednesday, Tindle said. 

Although consolidated cash flow trends need to improve, the company has a multiyear path to meaningfully better financial metrics, with a larger mix of services profitability, the analyst said. 

Raymond James raised its revenue and EPS estimates for 2019 from $21.7 billion to $22.2 billion and from $11.66 to $11.90, respectively. For 2020, the estimates were raised from $21.8 billion to $22.3 billion and from $11.93 to $12.35, respectively.

Price Action

Synnex shares were trading 1.53-percent higher at $92.07 at the time of publication Thursday. 

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