On Thursday, BofA Securities revised its price target for TD Synnex (NYSE:SNX), adjusting it to $132 from the previous $135, while continuing to endorse the stock with a Buy rating. The adjustment follows the company's disclosure of its second-quarter fiscal year 2024 revenue, which reached $13.9 billion, representing approximately 72% of its billings. The billings for the quarter were reported at $19.3 billion, marking a 3% year-over-year increase.
The growth in billings was uneven across the company's segments, with a 1% year-over-year increase in the Enterprise Solutions (ES) division, compared to a stronger 5% year-over-year growth in the Advanced Solutions (AS) division. The discrepancy was attributed to the growing prominence of software as a service in TD Synnex's revenue mix, leading to larger gross-to-net revenue adjustments compared to the previous year.
Looking ahead to the third quarter, TD Synnex has guided billings to be between $18.9 billion and $20.1 billion, with a midpoint of $19.5 billion, which reflects a 5% year-over-year increase. This forecast is slightly below the company's initial expectations set at the beginning of the year. For the second half of the fiscal year, billings are anticipated to grow at a mid-to-high single-digit rate year-over-year.
BofA Securities estimates that the total billings for fiscal year 2024 will be around $79 billion. Assuming a revenue to billings ratio of 72.0% to 72.5%, the firm projects annual revenue to be approximately $57 billion, which is about $1 billion less than their prior estimate. The higher mix of netted down items is expected to negatively impact revenue but potentially improve margins.
Additionally, the Asia-Pacific and Japan (APJ) region experienced a decline in operating margin by 70 basis points year-over-year due to investments made in India. Despite this, management's overall commentary suggests an improving environment for IT spending, albeit with more conservative growth expectations than previously forecasted. BofA Securities reaffirms its Buy rating on TD Synnex, citing the company's long-term shift toward higher-margin products and services, its broad portfolio, and opportunities for cross-selling.
In other recent news, TD SYNNEX (NYSE:SNX) reported a 3% year-on-year growth in gross billings for the second quarter of fiscal 2024. Despite experiencing a 4% decline in net revenue, the company saw an improvement in gross margins. These developments come amid the announcement of CEO Rich Hume's retirement and the appointment of COO Patrick Zammit as his successor.
The company returned over $520 million to shareholders in the first half of the fiscal year and expects non-GAAP gross billings of $18.9 billion to $20.1 billion for Q3. TD SYNNEX also projects a free cash flow of approximately $1.2 billion for the fiscal year, with a commitment to return 50% to shareholders. The company anticipates growth in the latter half of the fiscal year, driven by the upcoming PC market refresh and investments in AI.
InvestingPro Insights
As TD Synnex navigates its fiscal year with a focus on higher-margin offerings and strategic growth, investors can gain additional perspective through InvestingPro Insights. The company, with a market capitalization of $9.83 billion, is trading at a forward P/E ratio of 12.5, suggesting a valuation that may be attractive relative to its earnings potential. Furthermore, the company's dividend profile is robust, having raised its dividend for 3 consecutive years and maintained payments for 11 consecutive years, which could appeal to income-focused investors.
InvestingPro Tips highlight that TD Synnex management has been actively pursuing share buybacks, a move that can reflect confidence in the company's future and often serves to increase shareholder value. Additionally, the stock's recent performance indicates that it may be in oversold territory according to the RSI, which could signal a potential entry point for investors considering the stock's price movement over the last week. For those seeking a deeper dive into TD Synnex's financial health and future prospects, there are additional tips available on InvestingPro. With the use of the exclusive coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 16 InvestingPro Tips for TD Synnex.
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