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Analyst Blog

On Jul 1, 2014, Zacks Investment Research downgraded Tech Data Corp (TECD - Analyst Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Tech Data’s unimpressive first-quarter fiscal 2015 results were the primary reason behind the downgrade. Despite rising 9.7% from the year-ago quarter, earnings of 72 cents per share missed the Zacks Consensus Estimate by 18 cents.

Tech Data’s revenues improved 9.4% from the year-ago quarter to $6.73 billion. The Americas (36.8% of revenues) and Europe (63.2% of revenues) increased 8.0% and 10.3% year over year, respectively.

The year-over-year growth in the Americas was primarily driven by strong growth in the U.S. and Canada. The U.S. results were aided by robust performance from small and medium size business and strong growth in the education, federal and healthcare segments.

Although, Tech Data will benefit from stabilization in personal computers through the rest of 2014, we believe that the company’s growing exposure to volatile European markets remains a concern. Moreover, Tech Data’s back-end loaded guidance will remain a headwind in the near term.

Recently, Gartner revised down its IT spending forecast to 2.1% from 2.8%. As Tech Data is heavily dependent on IT spending, we believe that this revised estimate does not bode well for the company.

Owing to the present headwinds, analysts remain highly apprehensive, as is evident from the downward estimate revisions. Over the last 7 days, the Zacks Consensus Estimate fell 10.7% to $4.90 per share for fiscal 2014 while the same for fiscal 2015 declined 6.6% to $5.55 per share.

Other Stocks to Consider

Some better-ranked stocks include Autodesk Inc. (ADSK - Analyst Report), PC Connection (PCCC - Snapshot Report) and Ingram Micro (IM - Analyst Report). While Autodesk sports a Zacks Rank #1 (Strong Buy), PC Connection and Ingram Micro has a Zacks Rank #2 (Buy).

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