Tech Data (TECD) Earnings Miss – Canary in The Coal Mine for Tech?

by Dan May 24, 2011 6:56 am • Commentary

Yesterday TECD, a wholesale technology distributor, disappointed investors with an earnings and revenue shortfall that was largely blamed on weak consumer demand in Europe.  The stocks 12% sell-off following the news and the generally mediocre commentary about demand on the conf call left some puzzled when you consider that the miss on sales and earnings was just 1 & 2% respectively.

Citi who has a Buy and a $63 target suggested the following in a note to clients yesterday following the conf call:

Despite the modest shortfall in 1FQ (vs street estimates), mgt reiterated its full year guidance of double-digit growth in operating profit and EPS. Mgt seems confident in the guidance as 1) the outlook is not predicated on a recovery in European consumer, 2) commercial markets remain resilient, and 3) there are various initiatives in the commercial sector, particularly in SMB, that could partly offset the soft consumer demand. Lastly, we believe the company will adjust its opex to meet financial targets if the macro environment remains challenging

To Me that seems like a lot of “analyst speak” to justify a confounding move…..Citi suggests that the stock is cheap on a valuation basis trading at 9x their fiscal 2012 eps estimate vs expected double digit eps growth (is that 10 or 19%??).


Technically the stock has broken down from muti-year highs and will likely need to find a new range in which to base in… guess that is somewhere in the mid to low $40s….

[caption id="attachment_2143" align="aligncenter" width="300" caption="2 Yr TECD chart    Provided by LiveVol Pro"][/caption]


MY QUICK VIEW: I wouldn’t touch this one with a ten foot pool until the thing settles out a bit…..from my experience when  stocks like this appear to have a massive over-reaction to news it is usually well founded….the big boys who are selling see something that you and I don’t and rightfully so, that is what mutual fund and hedge fund analysts and portfolio managers are paid to do, but it doesn’t mean that just because your brokerage firm is defending the stock and reiterating their Buy that you have to catch a falling knife…..

-What drew me to the story, other than the price action is company’s commentary about Europe, while not that surprising given the focus on Euro-zone’s economy, but is this likely to persist throughout the summer and will it impact company’s like IBM, ORCL, INTC CSCO, MSFT and HPQ as they see a lot of their sales in Europe…….

-Easy answer to that is CSCO, MSFT and HPQ’s stocks already reflect a weak sales environment in Europe, but if things were to take a turn for the worse, or the potential of a rising $ were too affect the amount of sales in Europe and have an adverse currency affect will it finally take the air out of names like IBM, ORCL and INTC?