Based on a strong fiscal Q1 earnings report, investors scooped up shares in SYNNEX (NYSE:SNX) last week. The information-technology specialist surged 12% to $22.25 before leveling off at $20.89. The initial spike was probably an overreaction, but all in all, the company's M&A strategy seems to be paying off.
SYNNEX is the third-largest IT supply chain firm, distributing peripherals, system components, and software to a variety of companies. Its global footprint includes 16 distribution facilities in the U.S., Canada, China, and Mexico.
First-quarter revenues increased 5.8% to $1.59 billion, and net income shot up 30% to $13.9 million, or $0.43 per share. Gross margin improved slightly, but selling, general, and administrative expenses swelled from 2.85% to 3.12% of revenues.
Why the deterioration? SYNNEX has been plowing money into acquisitions, hoping to provide additional services for major OEM partners such as Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Symantec (NASDAQ:SYMC), IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ).
Its acquisition of PC Wholesale, for example, will deliver refurbished equipment, and its new Link2Support subsidiary will provide technical-support services via phone, email, and chat. The latter deal should also fit nicely with SYNNEX's recent purchase of call center support provider Concentrix.
These acquisitions not only help to cement OEM relationships, but also bring higher margins -- a godsend in the razor-thin world of IT distributors. SYNNEX's acquisitive strategy is still in its early phases, so we're likely to see further benefits as more synergies kick in. Investors shouldn't be surprised if more upside lies ahead for the stock.
We've acquired further Foolishness:
Microsoft, Intel, and Symantec are all Motley Fool Inside Value picks. Discover more top-shelf stocks at bargain-basement prices with a free 30-day trial subscription.
Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 1,590 out of 24,619 in CAPS. The Fool has a disclosure policy.
