We came across a bullish thesis on TD SYNNEX Corporation (SNX) on Waterboy’s Substack by Waterboy Investing. In this article we will summarize the bulls’ thesis on SNX. TD SYNNEX Corporation (SNX) share was trading at $118.83 as of Sept 19th.
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TD SYNNEX, as the leading global distributor and solutions aggregator for the IT ecosystem, serves over 150,000 customers across 100+ countries and maintains partnerships with more than 2,500 technology vendors, including Apple, Cisco, Microsoft, and HP. Its business model bridges the gap between world-class vendors and fragmented markets such as small and medium-sized businesses. The company provides cost-effective, scalable market access for its vendors, making it an essential player in the tech distribution chain.
The company’s three main segments—Endpoint Solutions, Advanced Solutions, and Strategic Technologies—drive its diversified business model. Strategic Technologies, which includes artificial intelligence, data, and security solutions, has seen significant growth, increasing from 17% of gross billings in 2021 to 25% today, reflecting TD SYNNEX’s successful pivot toward AI and advanced tech. Recent partnerships, including the launch of IBM’s watsonx program and collaborations with NVIDIA and Intel, further enhance its position in cutting-edge technology markets.
On the financial front, TD SYNNEX produced $1.2 billion in free cash flow in FY23, allowing for $630 million in share buybacks and $130 million in dividends. Over the last 12 months, the company generated $900 million in free cash flow, with a focus on returning capital to shareholders. Management has committed to delivering over $1.5 billion in free cash flow in the medium term, with half allocated to shareholder returns, primarily through buybacks, and the rest toward strategic investments and acquisitions.
As of its latest financials, TD SYNNEX holds $3.4 billion in net debt, with an EBITDA of $1.7 billion, giving it a manageable debt-to-EBITDA ratio of 2.0x. The company’s debt structure is diversified, with maturities extending through 2034 and manageable interest rates. Liquidity is strong, supported by $1.1 billion in cash, a $3.5 billion revolver, and $1.5 billion in accounts receivable securitization. This provides ample flexibility to manage debt and pursue growth initiatives.
Valuation-wise, TD SYNNEX trades at a 10% free cash flow yield, making it an attractive option for investors seeking stable returns. With EPS compounding at around 5% over the past decade, the stock offers a theoretical return of 15%. Glenn Greenberg’s Brave Warrior Advisors has recently increased its stake, highlighting confidence in TD SYNNEX’s growth potential. Trading down ~15% from its 52-week high, the stock presents a compelling investment opportunity, with the company’s investor presentation guiding to a 15-20% total stock return.
TD SYNNEX Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 46 hedge fund portfolios held SNX at the end of the second quarter which was 53 in the previous quarter. While we acknowledge the risk and potential of SNX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SNX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.