Shares of SYNNEX Corporation gained 6.5% on Monday after the IT services provider reported better-than-expected 1Q results and announced a merger deal with privately held Tech Data Corporation.
SYNNEX’s (SNX) 1Q revenues soared 21% to $4.94 billion year-over-year and surpassed analysts’ expectations of $4.72 billion. Non-GAAP earnings jumped 33.1% to $1.89 per share and topped Street estimates of $1.69.
SYNNEX’s CEO Dennis Polk said, “Our strong momentum continued in Q1, driven by solid demand for technology products and services, as our customers continued to support users everywhere to connect, collaborate and increase productivity.”
For 2Q, the company forecasts revenues between $4.7 billion and $5 billion. Moreover, it expects to report non-GAAP earnings in the range of $1.80-$2.00 per share.
Additionally, the company declared a quarterly cash dividend of $0.20 per share, reflecting a dividend yield of 0.73%.
Separately, SYNNEX announced a merger with Tech Data Corporation, wholly owned by funds managed by affiliates of Apollo Global Management, Inc. The transaction, which is valued at approximately $7.2 billion, is anticipated to close in the second half of 2021. (See SYNNEX stock analysis on TipRanks)
The combined company is estimated to generate pro forma annual revenues of about $57 billion with over 22,000 employees and more than 150,000 customers. The transaction is expected to be accretive to non-GAAP EPS.
Per the terms of the deal, SYNNEX shareholders will have a 55% stake in the combined company while the remaining 45% owned by Apollo Funds.
Following the earnings release and merger announcement, Raymond James analyst Adam Tindle raised the stock’s price target to $125 (13.8% upside potential) from $100 and reiterated a Buy rating.
In a note to investors, Tindle wrote that the results “featured strong revenue and profitability relative to our standalone TS model, and forward guidance that leaves our model little changed. The bigger story is the intent to merge with Tech Data via a $7B+ transaction that has a number of complexities (synergies, incremental debt, significant share issuance, management changes).”
Overall, the rest of the Street has a cautiously optimistic outlook on the stock, with a Moderate Buy consensus rating based on 4 Buys and 2 Holds. The average analyst price target of $108.20 implies downside potential of about 1.5% to current levels. Shares have gained nearly 260% in one year.