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Information Technology products distributor Tech Data Corp. (TECD - Analyst Report) is slated to release its third quarter 2012 results before the opening bell on November 21, 2011.

Given the current volatility in Europe, which is a key market for Tech Data, (approximately 60.0% of revenue) and disruptions at its largest revenue contributor Hewlett-Packard Corp. (HPQ - Analyst Report), we expect sluggish top-line and bottom-line performance for the quarter.

Prior-Quarter Recap

In the second quarter of fiscal 2011, Tech Data reported earnings per share that comprehensively beat the Zacks Consensus Estimate by 15 cents. The better-than-expected results were driven by robust revenue growth (up 18.0%) in the quarter.

For the third quarter, Tech Data expects mid single-digit organic sales growth in both the U.S. and Europe on a year-over-year basis. Tech Data expects year-over-year double-digit growth in operating income, net income and earnings per share for fiscal 2012.  For further details please see Tech Data Beats on Strong Sales.

Estimate Revision Trend

Currently, the Zacks Consensus Estimate is pegged at $1.27 for the third quarter, an increase of 18.7% from $1.07 reported in the year-ago quarter. This is based on an estimated revenue growth of 9.6% to $6.75 billion.

In the last 30 days, just one of the seven analysts covering the stock lowered estimates for the third quarter. Similarly, two analysts lowered their estimates for fiscal 2012 over the same period.

According to preliminary data from market research firm IDC, PC unit shipment growth is approximately 3.6% in the third quarter versus a prior forecast of 4.6%, primarily reflecting weakening demand in Europe. The analysts believe that lackluster growth in Europe will remain an overhang on Tech Data going forward.

The analysts also believe that aggressive share repurchases will not be enough to mitigate this overhang and offset the bottom line impact. Therefore, earnings may be expected to be under pressure in the upcoming quarters.

Conclusion

Tech Data posted a positive average earnings surprise of 9.90% in the trailing four quarters, implying that the company has exceeded the Zacks Consensus Estimate by the same magnitude over that period.

We believe that Tech Data faces a number of headwinds in the near term, including a volatile European market, lack of visibility in government spending in the U.S. and the negative effects of the floods in Thailand, which is expected to hurt PC shipments in the first quarter of calendar year 2012. Tech Data derives approximately 15% - 20% of revenue from PC distribution.

However, we note that year-to-date, Tech Data has outperformed the broader S&P market by 9.03%. This also compares favorably with its primary competitor Ingram Micro Inc. (IM - Analyst Report), which has declined 5.13% year-to-date. We believe that strong organic revenue growth, increasing enterprise spending and an aggressive share repurchase policy will drive the stock over the long term.

We have a Neutral recommendation on Tech Data’s shares over the long term. Currently, Tech Data has a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold rating.

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