We upgrade Tech Data Corp. (TECD) to Outperform from our previous Neutral rating, indicating that it would perform above the broader market. We have raised our price target to $55.00.
Third Quarter Results
On November 22nd, Tech Data reported impressive third quarter results, beating the Zacks Consensus Estimate. Record revenues and EPS in the quarter were attributable to a strong demand for technology products in both the Americas and Europe.
Net income in the reported quarter was $50.5 million, compared with $43.1 million in the year-ago quarter. The quarter's EPS was $1.07, compared with 84 cents in the year-ago quarter. EPS beat the Zacks Consensus Estimate of 95 cents, with a surprise of 12.6%.
Total revenue in the reported quarter was $6.16 billion, an increase of 9.2% from $5.64 billion in the prior-year quarter. This was above the Zacks Consensus Estimate of $5.77 billion. However, results were hit by a stronger U.S. dollar that adversely affected sales by 5 percentage points in the quarter. Sequentially, revenues escalated 12.6%.
Estimates Up
The Zacks Consensus Estimates for the next two quarters and fiscal years 2011 and 2012 are up by 14 cents, 7 cents, 27 cents and 35 cents, respectively. Tech Data has surpassed the analysts' EPS expectation in each of the last four quarters, posting an average surprise of approximately 15.0%.
All of the analysts providing estimates have raised their estimates for fiscal 2011 and 2012.
The inclusion of Triade Holding in its financial results is expected to boost both revenues and EPS going forward. Although no specific guidance was provided, Tech Data expects recent demand trends to continue in the fourth quarter of 2011. Revenues are expected to surpass the seasonal pattern.
The current Zacks Consensus Estimates for the fourth quarter and full year 2011 are pegged at $1.43 and $4.18 per share in earnings.
Our Take
With strong earnings momentum, diversified customer base, increased acquisition, diverse product portfolio, significant operating efficiency and share repurchases, we remain positive on the company's long-term growth.
We believe Tech Data continues to benefit from an increase in internal investment, increased workforce and higher spending on developing systems.
Moreover, Tech Data's healthy balance sheet gives it the financial flexibility to expand market share, pursue acquisitions, pay off its debt, repurchase shares and weather the current economic crisis.
The company ended the third quarter of 2011 with $706.5 million in cash and $392.4 million in long-term debt.Tech Data had a net cash (cash less debt) position of $314.2 million or $6.67 per share as of October 31, 2010.Return on capital employed (ROCE) improved to 13% in fiscal 2010 from 8% in fiscal 2009 and 2008.
However, a stronger U.S. dollar, intense competition and weak industry pricing remain concerns. Despite competition and pricing pressure, we expect the company to post upbeat full-year 2011 and 2012 results. EPS estimate is up 6.9% for 2011 and 8.0% for 2012, representing annual growth rates of 22.0% and 13.0%, respectively.
The shares trade at a premium to industry leader, Ingram Micro (IM).
Given positive estimate revisions, we have a Zacks #2 Rank on Tech Data, implying a short-term Buy rating.
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TECH DATA CORP (TECD): Free Stock Analysis Report
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