TD SYNNEX Corporation (SNX) and Teradata Corporation (TDC) are two prominent players in the information technology (IT) services industry. TDC focuses on providing a connected multi-cloud data platform for enterprise analytics. Its Teradata Vantage data warehouse and analytics platform allow customers to integrate and simplify their multi-cloud data and analytic ecosystems. In comparison, SNX is a business process services company that provides a range of distribution, logistics, and integration services for the technology industry and outsourced services focused on customer engagement strategy. It also offers marketing services and serves resellers, system integrators, and retailers.
Rapid digitalization in various industries and the adoption of remote working structures have driven the demand for software, consulting, communication, and hardware services. As a result, the information technology (IT) services market is expected to grow.
Moreover, funding allotted for the technology sector in the recently passed Bipartisan Infrastructure Bill should help the industry grow substantially. Investor interest in this space is evident from the Vanguard Information Technology ETF’s (VGT) 9.9% returns over the past year. The North American IT Services market is expected to grow at a 7.6% CAGR to reach $660.9 billion by 2026. So, both TDC and SNX should benefit.
TDC is a winner with 29.5% gains versus SNX’s 18.4% returns in terms of the past year’s performance. But which of these stocks is a better pick now? Let’s find out.
On January 17, 2022, SNX announced a new strategic collaboration agreement (SCA) with Amazon.com, Inc.’s (AMZN) Amazon Web Services, Inc. (AWS) to invest in and leverage an enhanced range of AWS Cloud services to help small and medium-sized businesses and public sector organizations expand their digital business offerings. With AWS solutions added to its vast portfolio, SNX is looking forward to providing enhanced business outcomes.
On January 28, 2022, Spanish multinational telecommunications company Telefónica España expanded its relationship with TDC by migrating its on-premises data analytics ecosystem to Teradata Vantage on Google Cloud. TDC is looking forward to helping Telefónica España quickly generate data-driven insights that lead to meaningful business outcomes.
Recent Financial Results
SNX’s revenue for its fiscal 2021 fourth quarter ended November 30, 2021, increased 155.1% year-over-year to $15.61 billion. The company’s gross profit came in at $943.17 million, up 157.2% from the prior-year period. Its non-GAAP operating income came in at $407.94 million, representing an 84.9% rise from its prior-year value. Its non-GAAP net income came in at $273.82 million for the quarter, indicating an 88.7% rise from the prior-year period. Its non-GAAP EPS increased 1.4% year-over-year to $2.86. The company had $993.97 million in cash and equivalents as of November 30, 2021.
For its fiscal third quarter, ended September 30, 2021, TDC’s total revenue increased 1.3% year-over-year to $460 million. The company’s total gross profit came in at $275 million, up 8.3% from the prior-year period. Its income from operations was $30 million, indicating a 2900% rise from the year-ago period. TDC’s net income came in at $17 million for the quarter, compared to a $1 million loss in the prior-year period. Its EPS came in at $0.15, versus a $0.01 loss per share in the year-ago period. The company had $613 million in cash and equivalents as of September 30, 2021.
Past and Expected Financial Performance
Over the past three years, SNX’s EBITDA has grown at a CAGR of 0.9%. Analysts expect SNX’s EPS to rise 18.2% year-over-year in fiscal 2022, ending November 30, 2022, and 10.3% in fiscal 2023. Its revenue is expected to grow 96.3% year-over-year in fiscal 2022 and 3.7% in fiscal 2023. The stock’s EPS is expected to increase at a 5% rate per annum over the next five years.
In comparison, TDC’s EBITDA increased at a CAGR of 41.8% over the past three years. Analysts expect TDC’s EPS to grow 61.8% year-over-year in fiscal 2021, ending December 31, 2021, and decline 15.1% in fiscal 2022. Its revenue is expected to grow 4.6% year-over-year in fiscal 2021 and 1.3% in fiscal 2022. Its EPS is estimated to grow at a 17.8% rate per annum over the next five years.
In terms of forward EV/Sales, TDC is currently trading at 2.23x, 961.9% higher than SNX’s 4.01x. In terms of forward EV/EBITDA, SNX’s 7.64x compares with TDC’s 8.52x.
SNX’s trailing-12-month revenue is almost 16.4 times TDC’s. However, TDC is more profitable, with a 61.3% gross profit margin versus SNX’s 6%.
Furthermore, TDC’s EBITDA margin and levered free cash flow of 19.6% and 18.6% compare favorably with SNX’s 2.5% and 4.8%, respectively.
While TDC has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, SNX has an overall C grade, equating to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
TDC has a B grade for Growth. The company’s EBITDA has grown 146.1% from the prior-year period. SNX’s C grade for Growth is in sync with its negative EBITDA growth over the past year.
TDC has a B grade for Quality, consistent with its higher-than-industry profitability ratios. TDC’s 18.6% trailing-12-month levered free cash flow margin is 57.8% higher than the 11.8% industry average. SNX has been graded a D for Quality, in sync with its lower-than-industry profitability ratios. SNX has a 4.8% trailing-12-month levered free cash flow margin, which is 59.2% lower than the 5.7% industry average.
Of the 78 stocks in the Technology – Services industry, TDC is ranked #2, SNX is ranked #34.
Beyond what we have stated above, our POWR Ratings system has also rated TDC and SNX for Sentiment, Value, Momentum, and Quality. Get all TDC ratings here. Also, click here to see the additional POWR Ratings for SNX.
Increased spending on information technology services should enable both TDC and SNX to grow. However, better profitability ratios make TDC a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology – Services industry.
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SNX shares were trading at $97.74 per share on Friday afternoon, down $2.38 (-2.38%). Year-to-date, SNX has declined -14.29%, versus a -8.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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