Bull of the Day: SYNNEX (SNX) - Bull of the Day

Based on consensus estimates, analysts are projecting 37% EPS growth this year and 12% growth next year. Despite this, shares trade at less than 12x forward earnings.

SYNNEX Corporation is a business process services company, servicing resellers, retailers and original equipment manufacturers around the globe. SYNNEX provides services in IT distribution, supply chain management, contract assembly and global business services. It was founded in 1980.

First Quarter Results

SYNNEX reported its fiscal 2014 first quarter results on April 3. Revenue surged 23% year-over-year to $3.027 billion, well above the consensus of $2.751 billion. This was driven by strong IT demand.

Meanwhile, adjusted operating income increased 32% as the adjusted operating margin expanded 18 basis points to 2.53%.

These factors led to a whopping 37% surge in adjusted EPS to $1.25. This crushed the Zacks Consensus Estimate of $0.94.

Soaring Estimates

Following better-than-expected first quarter results, management provided strong guidance for Q2. The company expects adjusted EPS between $1.34 and $1.38 for the quarter, which was well above consensus at the time of $1.11. CEO Kevin Murai stated, "We believe the strength we have recently experienced in IT demand will continue in our second quarter."

This prompted analysts to revise their estimates significantly higher, not just for Q2, but for FY2014 and FY2015. This sent the stock to a Zacks Rank #1 (Strong Buy) stock.

The 2014 Zacks Consensus Estimate is now $5.72, up from $4.69 before the Q1 report. The 2015 consensus is currently $6.41, up from $5.32 over the same period.

Based on these consensus estimates, analysts are projecting 37% EPS growth for SYNNEX this year and 12% growth for next year.

You can see the sharp rise in estimates in the company's "Price & Consensus" chart:

Reasonable Valuation

Shares of SYNNEX jumped after the Q1 report but have pulled back a bit along with the overall market. The stock currently trades at less than 12x 12-month forward earnings, which is near its 10-year historical median but a significant discount to the industry median of 24x.

Its price to cash flow ratio of 14 is also well below the peer group median of 32.

The Bottom Line

With soaring earnings estimates, strong growth projections and reasonable valuation, SYNNEX offers investors attractive upside potential.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

 
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