TD SYNNEX (SNX): Navigating Mixed Signals in Q1 – Sell or Hold the Tech Distributor?

TD SYNNEX Corporation (SNX) has long been a bellwether for the technology distribution sector, but its Q1 FY25 earnings report has investors questioning whether the company’s stock is worth buying, selling, or holding. Let’s dissect the numbers and trends to determine the optimal strategy.

Earnings Recap: Revenue Growth, but Missed Estimates

In Q1 FY25, SYNNEX reported revenue of $14.53 billion, a 4.0% year-over-year increase. However, this fell short of the $14.79 billion consensus by 1.78%, marking the second consecutive quarter of revenue misses. The GAAP EPS of $1.98 also underperformed expectations of $2.87, though the non-GAAP adjusted EPS of $2.80 beat estimates by 28%. This discrepancy highlights the impact of non-recurring costs, but investors focus on GAAP metrics, leading to a -2.44% earnings surprise that rattled the stock.

Ask Aime: "Should I buy, sell, or hold Toast after its Q1 FY25 earnings report?"

Key Metrics: Growth vs. Margin Pressure

• Gross Billings: A critical metric for SYNNEX’s distribution business, non-GAAP gross billings hit $20.7 billion, up 7.5% YoY, hitting the top end of guidance.
• Gross Margin: Compressed to 6.87% from 7.20% in Q1 FY24**, driven by shifts in product mix and strategic tech priorities.
• Cash Flow: Negative free cash flow of $790 million in Q1 FY25 (vs. $344 million positive in Q1 FY24) signals working capital challenges.

Analyst Sentiment: Downgrades and a "Sell" Signal

Analysts have grown cautious. SYNNEX’s Zacks Rank dropped to #4 (Sell) due to declining earnings estimate revisions. The stock has underperformed the S&P 500 by 620 basis points over the past month (-10.2% vs. -4%).

Guidance: Caution Ahead

For Q2 FY25, SYNNEX guided to EPS of $2.45–$2.95 (GAAP) and revenue of $13.9–$14.7 billion, well below the consensus estimates of $2.96 EPS and $14.76 billion revenue. Management cited macroeconomic uncertainty and supply chain volatility as headwinds.

Regional Performance: Americas Shine, Europe Struggles

• Americas: Revenue rose 6.2% to $8.39 billion, aligning with expectations.
• Europe: Revenue grew only 0.4% to $5.14 billion, missing estimates by $260 million, signaling softness in key markets.
• Asia-Pacific/Japan: Revenue increased 5.2% but fell short of forecasts.

Valuation and Dividends: A Silver Lining?

SYNNEX’s dividend remains a draw. The company hiked its payout by 10% to $0.44 per share, with a 2.1% dividend yield. However, the stock trades at 13.6x forward P/E, slightly below its 5-year average of 14.2x.

Conclusion: Sell, but Watch for Turnaround

TD SYNNEX’s Q1 results present a mixed picture. While its distribution scale and strategic tech partnerships remain strengths, the recurring revenue misses, margin compression, and negative cash flow suggest execution challenges. Analysts’ downgrade and the Zacks #4 Sell rating reinforce near-term risks.

The stock’s -10.2% underperformance versus the market and cautious guidance point to further downside unless SYNNEX delivers a Q2 beat. Holders may want to capitalize on the dividend while considering scaling back exposure. For now, the Sell recommendation is justified until there’s clear evidence of margin stabilization or revenue acceleration.

Final Call: Sell
- Key Data: Q1 EPS miss (-2.44%), Zacks #4 Sell, -10.2% stock underperformance.
- Risks: Supply chain delays, margin pressures, European market softness.
- Upside Catalyst: Strong Q2 results, margin recovery, or strategic acquisitions.

Investors should monitor SYNNEX’s Q2 execution closely, but until then, the risks outweigh the rewards.