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Information technology products distributor Tech Data Corp. (TECD - Analyst Report) is slated to release its third quarter 2013 results before the opening bell on November 20, 2012. As per the Zacks Consensus Estimate, Tech Data is expected to earn $1.34 per share on revenues of $6.22 billion in the quarter.

Prior-Quarter Recap

Tech Data reported a disappointing second quarter of 2013. Earnings of 88 cents per share were well short of the Zacks Consensus Estimate of $1.18. However, revenue was slightly better than the consensus mark of $5.86 billion.

For the third quarter, Tech Data expects year-over-year sales growth of mid-single-digits in Europe (in €). Tech Data expects gross and operating margins to increase sequentially. For further details please see Tech Data Misses on Lower Sales.

Estimate Revision Trend

In the run-up to the earnings, only one upward revision was noticed. However, a downward revision partially offset the positive effect. As a result, the consensus estimate increased by a penny over the last 30 days.

We note that on an average, Tech Data has posted an earnings surprise of (3.54%) in the trailing four quarters, implying that it has lagged the Zacks Consensus Estimate by the same magnitude over the period. We do not expect a major change in the earnings surprise trend for the current quarter.

Conclusion

We believe that Tech Data faces a number of headwinds in the near term, including a volatile European market (approximately 60.0% of revenue) and weakness in the personal computing and server market. Moreover, it faces tough competition from Ingram Micro Inc. (IM - Analyst Report) and SYNNEX Corp (SNX - Snapshot Report).

However, Tech Data’s strategy of shifting resources from lower-performing regions to higher-growth regions; cost reductions and accretive acquisitions will drive growth going forward. Moreover, the recent acquisition of Brightstar and certain Specialist Distribution Group (“SDG”) operations will drive growth over the long term.

Thus, we maintain our long-term Neutral recommendation on the stock. Currently, the stock holds a Zacks #3 Rank, implying a short-term ‘Hold’ rating.

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