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Further Upside in High Conviction Q4 2020 Spinoff, Positive Insider Buying

Synnex Corp. (SNX) released strong Q2FY20 earnings yesterday (June 25), beating estimates and providing impressive guidance for next quarter. Since our recommendation on May 1, 2020, on the back of a key insider buying pattern, the stock has returned +19% (vs. the S&P Index's +9% in the same period), and we believe several key factors provide further upside ahead of its planned Q4 2020 Spinoff.

The Edge View...
Our high conviction insider buy idea Synnex Corp. (SNX) reported strong Q2FY20 earnings yesterday (June 25, 2020), beating estimates. The company’s Q2FY20 revenue was $5.5bn (surpassing estimates of $5.2bn) and EBITDA was $197m, beating estimates of $109m. Since our initial recommendation on May 1, 2020, the stock has gained +19%, outperforming S&P 500 Index return of +9% in the same period to date.

With these impressive results, the company also provided ambitious guidance for Q3FY20E, with revenue expected to be in the range of $5.5bn to $5.9bn and adjusted net income in the range of $103.9m to $129.9m, translating to the adjusted EPS range of $1.29 to $1.79. SNX also announced a share repurchase program of $400m for the three years effective from next month (July 1, 2020), which we believe is positive for shareholder sentiment in the near-term.

Furthermore, the Concentrix Spinoff is expected to be completed as planned in Q4 2020. We believe SNX's strong results and excellent outlook amid challenging times reiterates our confidence in the company's fundamentals. Therefore, we recommend investors to continue to hold SNX for further gains ahead of the upcoming Spin in Q4.

What We Said...
Smart Insider Buys for Only the Second Time in 20 Years: Long-serving Chairman (1992 to 2008) and now Chairman Emeritus (as of December 2008) Matthew Miau, 73, holds a signicant 19% stake in Synnex Corp. (SNX). Currently, SNX is the only US-listed company he serves on the board for. Mr. Miau’s track record as an insider has been predominantly as a seller of SNX stock for over 20 years. However, there was an exception in 2018 and most recently in April 2020.

In his previous October 2018 cluster of buys, it worked out as a great purchase as he picked up SNX’s shares at around the $78.50 level, spending over $39 million via Mr. Miau’s open market purchases ($20m) and Silver Star Developments Ltd. (over $19m), a wholly-owned subsidiary of MiTAC International Corp. (Mr. Miau is also the Chairman of this company). As of February 20, 2020, before the pandemic hit the market, SNX was trading above $145, meaning an +85% return for Mr. Miau (or over $33 million in profit). On March 31, April 22 and April 23, 2020, with the stock on average back down to the $73 level, Mr. Miau bought more shares in SNX for the second time in 20 years, spending over $9 million via open market purchases ($4.6m) and Silver Star Developments ($4.4m).

The Edge Insider's View: We believe this most recent cluster purchase is significant as Mr. Miau has shown a positive track record of picking up SNX at lower levels, and with a 20-year history he has only bought shares when the opportunity presents itself. With SNX’s Spinoff scheduled for Q4 2020 and its stock price already making a strong rebound since Mr. Miau’s purchase, we see this as a positive pattern.