SYNNEX Corporation

SNX Details 

Business Update: SYNNEX Corporation (NYSE: SNX) is involved in offering a broad range of distribution, logistics and integration services to the Information Technology sector. On 12 May 2020, the company provided its 2QFY20 update for the period ending May 31, 2020. For 2QFY20, the company expects non-GAAP diluted earnings per share to be in the ambit of $0.00 to $1.00. The company’s initiatives for increased work-from-home capabilities and support to clients by the Concentrix team, aided it to improve its second quarter outlook. While the company finds it difficult to gauge the impact of COVID-19, it is focused towards maintaining the health and safety of its associates. The company has a robust balance sheet and has improved its liquidity position to ~$2 billion, without raising additional capital.

Other Recent Update: On May 13, 2020, the company stated  that CRN® has recognized 10 SYNNEX officials to its respected 2020 Women of the Channel list, with two making place in the Power 100 list. 

First Quarter of FY20 Key Highlights: During the quarter, SNX reported revenues of $5,264 million, up marginally from $5,249 million reported in the year-ago quarter. Non-GAAP EPS for the period came in at $3.26 per share, up from $2.84 per share reported in the year-ago period.  Both top and bottom-line increased year over year, due to higher organic revenues along with robust execution by Technology Solutions and Concentrix. In 1QFY20, non-GAAP operating income stood at $250.9 million, up 3.4% year over year. Also, non-GAAP operating margin stood at 4.77%, up 15 basis points (bps) over the same time span. At the end of the quarter, cash and cash equivalents came in at $296.2 million.

1QFY20 Key Highlights (Source: Company Reports)

Stock Recommendation: The stock of SNX is quoting at $105.61 with a market capitalization of $5.4 billion. The stock is trading above the average of its 52-week high and low of $153.07 to $52.06, respectively. The stock corrected by 21.08% in the last three months but went up 38.58% in the last one month. Going forward, rise in PCs, networking and cloud-based related services is expected to enhance the company’s Technology Solutions business. On the valuation front, the stock is trading at an EV/EBITDA multiple of 8.7x as compared to the industry mean of 8.9x on TTM (Trailing Twelve Months) basis. Hence, we give a ‘Hold’ recommendation on the stock at the closing price of $105.61, up 4.99% as on 26 May 2020.

SNX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Walgreens Boots Alliance, Inc.

WBA Details

Revenues up ~3.7% Year Over Year: Walgreens Boots Alliance, Inc. (NASDAQ: WBA) is the worldwide leader in retail and wholesale pharmacy and health and beauty products. In a recent update, the company state that it has priced underwritten public offering of unsecured, unsubordinated notes consisting of $500 Mn senior notes, carrying an interest rate of 3.200%, due 2030 and $1,000 Mn notes, with interest rate of 4.100%, due 2050.

Second-Quarter Fiscal 2020 Results for the Period Ended 29 February 2020: The company reported adjusted earnings of $1.52 per share, a decline of 7.3% year over year. Reported EPS for the quarter came in at $1.07, down 13.7% on pcp. Lower-than-expected growth in Retail Pharmacy International and margin reduction impacted bottom line performance. The company’s total sales stood at $35.8 billion, an increase of 3.7% year over year and 4.1% on constant currency basis. The increase was due to improvement within the Retail Pharmacy USA and Pharmaceutical Wholesale divisions. Gross profit during the quarter came in at $7.51 billion. Selling, general & administrative expenses came in at $6.3 billion, down 0.2% y-o-y. Cash and cash equivalents at the end of period came in at $792 million, while long-term debt stood at $10.63 billion.

Financial Details (Source: Company Reports)

Segment Details: Sales from Retail Pharmacy USA increased 3.8% year over year. Retail Pharmacy International division revenues during the quarter declined 0.8% on a year-over-year basis. Revenues from the Pharmaceutical Wholesale division increased 5.7% year over year.

Outlook: The company stated that prior to COVID-19 crisis it expected adjusted earnings per share growth in FY2020 to be in the range of plus or minus 3%. As it is unclear about the future impact of the pandemic, the company will provide FY20 outlook in the next earnings report.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months.

Stock Recommendation: The stock of WBA closed at $42.16 with a market capitalization of $36.98 billion. The stock is trading at the lower band of its 52-week trading range of $36.65 to $64.5. The stock of the company went down by 3.61% in the past one month. Debt to equity multiple in Feb’20 stood at 0.75x, lower than the industry median of 0.99x.  The company’s Retail Pharmacy business rides on numerous developments likes extension of strategic partnership with Kroger, nationwide offering with FedEx, association with Centene, and RxAdvance, along with a multi-year Medicare agreement with UnitedHealthcare. Overall, the Retail Pharmacy USA division saw growth during the quarter, primarily on the back of robust retail prescription market. Moreover, the company is taking the necessary measures to hasten the initiatives of digitalization and transformation of its business. Considering the above factors, we have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price depicting low double-digit upside (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the closing price of $42.16 per share, up by 6.46% on 26 May 2020.

WBA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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