Tech Data Corp. (TECD) recently announced that its Board of Directors has authorized a share repurchase program of up to $100 million of the company's common stock. We believe the latest Share repurchase reflects company’s towards increased shareholder returns, which stems from a solid financial position of the company. Since 2005, the company invested nearly $1 billion toward its share repurchase program in buying back around 41% of issued capital.
Tech Data’s healthy balance sheet and cash flow give it the financial flexibility to expand market share, pursue acquisitions and repurchase shares. Improving cash conversion cycle (19 in 2014 versus 21 in 2013) positively impacted cash flow from operating activities.
The company has enough liquidity ($611.5 million in cash & cash equivalents and revolving facility of $500.0 million) to pay off contractual obligations (operating leases, capital leases and debt) amounting to $403.8 million in 2015. In addition, the company also lowers its total debt position to $353.5 million in the third quarter from $402.5 million at the end of the last quarter, which will result in lower interest expenses going forward.
However, we are concerned about aggressive industry pricing. There is intense pricing pressure as industry players vie for business. Pricing pressures in the indirect channel have intensified, resulting in lower gross margins and more competitive conditions. We are still concerned with the low growth and low margin of the tech distribution business. Tech Data’s profit margins are thin, despite its cost-cutting efforts.
Tech Data currently has a Zacks Rank #3 (Hold).
Other Stocks
Better-ranked stocks in this sector include Geeknet, Inc. (GKNT) and Stamps.com Inc. (STMP) sporting a Zacks Rank #1 (Strong Buy) as well as Oplink Communications, Inc. (OPLK) with a Zacks Rank #2 (Buy).
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