SNX To Continue Ro Expand Its Operating Margin In 2010

Analysts at Brean Murray reiterate their "buy" rating on Synnex Corp SNX, while raising their estimates for the company. The target price for SNX is set to $38. SNX has reported better-than-expected results for the May quarter. According to Brean Murray, “Consistent with our thesis, we believe Synnex can continue to prudently guide (so in line with typical seasonal demand) while continuing to expand operating margins in 2010 and exceeding Street EPS estimates…. Synnex delivered a VERY strong operating margin of 2.14%, easily exceeding what we would have expected to be ~2.04% after the pre-announcement. The theme, and our thesis, remains secular operating margin expansion from a number of vectors: 1) core “traditional” distribution, 2) expansion into new distribution areas (enterprise and retail, including video game distribution via the Jack of All Games acquisition), and the continued growth of higher operating margin (>10%) value-added services.” “We believe margin expansion opportunities remain through ’10. Chiefly, 1) Core IT distribution business continues to have great legs on margin expansion going forward; 2) Synnex will continue to focus on high growth adjacent markets (gaming and consumer electronics devices) and higher margin enterprise businesses (servers, storage, networking, services); 3) Synnex will also expand GBS into areas which offer higher gross margin (such as proprietary platform, end-to-end solution); and 4) additional cost associated with Jack of All Games is not expected to continue on a go-forward basis,” the analysts mention. Brean Murray has raised its EPS estimate for 2010 from $2.85 to $2.95. More Analyst Ratings here