Strong demand for information technology products and services should be a long-term tailwind for TD Synnex Corp. (SNX), suggests Chuck Carlson, dividend reinvestment specialist and editor of DRIP Investor.
The company is a major distributor of products and services for the IT ecosystem, offering a vast product line that includes systems design and integration solutions, cloud services, and web-based and online solutions.
It has been beating Wall Street estimates over the last three quarters, and I expect that trend to continue in the second half of 2024. Long term, secular growth trends in the technology space should lead to sustained growth. Yielding 1.2%, TD Synnex shares offer a way to play continued growth in the nation’s IT infrastructure.
The company was formed via the 2021 merger of Synnex and Tech Data. The company brings products from the world’s leading and emerging technology vendors to market. The firm offers a comprehensive catalog of more than 200,000 technology products from more than 2,500 original equipment manufacturers (OEM) and suppliers.
The majority of the company’s offerings fall into two solution portfolios: Endpoint Solutions portfolio includes personal computing devices and peripherals; Advanced Solutions includes data center technologies, such as hybrid cloud, security, storage, networking, servers, and hyperscale infrastructure.
Primary OEM suppliers include Apple Inc. (AAPL), Cisco Systems Inc. (CSCO), Dell Technologies Inc. (DELL), IBM Corp. (IBM), and Microsoft Corp. (MSFT). The company has a diversified revenue base — in fiscal 2023, one vendor (Apple) accounted for 11% of sales. About 47% of sales in fiscal 2023 were overseas.
A major appeal of TD Synnex is valuation. Indeed, the stock trades at less than 11 times fiscal 2024 earnings estimates. To be sure, that modest valuation reflects the thin margins that are customary in the distribution business.
Still, TD Synnex boosted its gross margin in the fiscal first quarter. Furthermore, given the likelihood of per-share earnings growth of 7%-9% over the next few years, investors in TD Synnex are not paying much for that growth path.
TD Synnex offers a way to play technology at a reasonable valuation. Investors also get a rising dividend stream — the dividend was boosted 14% earlier this year. A strong move above $130 per share would represent a significant breakout for the stock and likely lead to further gains in the near term.
Please note: TD Synnex offers a direct-purchase plan under the Computershare’s DirectStock online-only plan. The minimum initial investment is $25.
