On Wednesday, UBS has increased its price target on TD Synnex (NYSE:SNX) shares to $150 from the previous target of $145, while keeping a Buy rating on the stock. The firm outlined its perspective following TD Synnex's third-quarter fiscal guide, which was generally in line with UBS's forecasts but slightly below the higher consensus estimates that did not account for ongoing macroeconomic challenges.
The updated outlook from UBS comes with an expectation of accelerated gross billings in the second half of fiscal year 2024 and into fiscal year 2025. Both the Endpoint Solutions (ES) and Advanced Solutions (AS) segments are anticipated to experience solid growth.
The firm projects that most product categories will see robust growth in the next year, with PC unit growth expected to speed up, networking to recover from challenging backlog comparisons in the fall, and storage to gain momentum based on market research.
UBS predicts nearly 6% growth in billings for the next year, an increase from 2% in fiscal year 2024. This is expected to drive low-double digit earnings per share (EPS) growth, supported by a 2% reduction in share count and a decrease in interest expenses following the repayment of $700 million in debt scheduled for August.
The valuation of TD Synnex at a price-to-earnings ratio of approximately 9 times UBS's fiscal year 2025 EPS estimate of $13.00 suggests an increasingly favorable risk/reward scenario, according to UBS.
Moreover, with the shares currently yielding a 12% free cash flow (FY24), the firm believes there is limited downside risk at present levels. The price target of $150 is based on 11 times the estimated EPS of $13.67 for calendar years 2025 and 2026, an increase from the previous estimate of $13.16.
In other recent news, TD SYNNEX (NYSE:SNX) has reported a 3% year-on-year growth in gross billings for the second quarter of fiscal 2024. Despite a 4% decline in net revenue, the company saw an improvement in gross margins and anticipates further growth in the latter half of the fiscal year, driven by upcoming PC refresh cycles and investments in strategic technologies.
CEO Rich Hume is set to retire in September, with COO Patrick Zammit succeeding him. TD SYNNEX has returned over $520 million to shareholders in the first half of the fiscal year and plans to continue this balanced capital return framework.
The company expects non-GAAP gross billings for Q3 to be between $18.9 billion and $20.1 billion. These recent developments suggest that TD SYNNEX is poised for continued growth and is committed to delivering value to its shareholders.
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