A month has gone by since the last earnings report for Synnex (SNX). Shares have added about 19.7% 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 the most recent earnings report in order to get a better handle on the important drivers.
SYNNEX Q2 Earnings & Revenues Beat Estimates
SYNNEX delivered non-GAAP earnings of $1.83 per share for second-quarter fiscal 2020, which fell 36% from the year-ago quarter. However, the figure beat the Zacks Consensus Estimate of 51 cents.
Revenues dropped to $5.53 billion from $5.72 billion in the year-ago quarter. The revenues beat the Zacks Consensus Estimate of $5.11 billion.
The lower-than-expected top-line performance was mainly due to the coronavirus outbreak, which disrupted the company’s operations.
Further, the company is moving toward its previous announcement of splitting SYNNEX Technology Solutions and Concentrix into two publicly-traded companies. Management believes that this strategic action would help add shareholder value and enhance the company's competitive edge. The transaction is expected to be completed in the second half of 2020.
SYNNEX’s Technology Solutions revenues decreased 2% year over year to $4.5 billion.
Concentrix business revenues decreased 8% year over year to $1.1 billion. Foreign exchange headwinds impacted revenues of this segment by 2%.
In the reported quarter, non-GAAP operating income was down 33.8% to $161.5 million. Also, non-GAAP operating margin contracted 134 basis points (bps) on a year-over-year basis to 2.92%.
Non-GAAP operating income for Technology Solutions was $98 million, down 21% from the year-ago quarter. COVID-19-related additional expenses of approximately $37 million for the Technology Solutions segment, including an increase in the allowance for doubtful accounts and staffing costs, was an overhang.
For the Concentrix segment, non-GAAP operating income was $63 million, falling 47% year over year, primarily due to the COVID-19-related additional expenses of $52 million.
Balance Sheet & Cash Flow
SYNNEX ended the fiscal first quarter with cash and cash equivalents of nearly $1.11 billion compared with $296.2 million at the end of first-quarter fiscal 2020.
The company’s board of directors has approved a share repurchase program of up to $400 million of its common stock for up to three years. This will come into effect from Jul 1, replacing the previous three-year program.
For the third quarter of fiscal 2020, revenues are expected between $5.5 billion and $5.9 billion.
Non-GAAP net income is expected to be in the range of $103.9-$129.9 million. Moreover, the company also expects non-GAAP earnings between $2 and $2.50 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 60.05% due to these changes.
Currently, Synnex has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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