CDW vs. TD Synnex: Which Hi-Tech Distributor is the Best?

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Overview

CDW Corporation (NASDAQ:CDW) and TD Synnex (NYSE: SNX) are the two largest high-tech distributors in North America.

With operations spanning North America and Canada, both CDW and SNX generate large amounts of revenue and cash flow and pay significant distributions by selling PCs, laptops, servers, monitor software, etc., while also expanding its higher-margin services business.

In this article, I will compare the potential of CDW and SNX based on their Q3 2022 results to see which is the better investment for 2025.

On a revenue basis, SNX is a much larger company than CDW with revenue of $61 billion compared to CDW’s $21 billion.

financial metrics

When we look at financial metrics comparing the two companies on a TTM (Trailing Twelve Month) basis, several metrics jump out at us, including the fact that SNX Price/Sales (Line 3) is 1/10 of CDW. That’s basically because CDW sells more services that tend to have much higher margins than pure wholesalers like SNX, even though SNX is adding services to its revenue mix.

That’s also shown in CDW’s higher gross margin % (line 5) of 19% vs. SNX’s 6%. But based on GM’s market value percentage (line 8), SNX’s margin is much higher than CDW’s, from 44% to 20%. And it is also true for GM to Enterprise % (Line 9). That would indicate that perhaps SNX is priced lower than CDW.

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SNX has a PE ratio (line 11) that is half that of CDW, but that comparison is reversed when it comes to price to free cash flow (line 16), with the CDW ratio being less than 25% of the CDW ratio. SNX.

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Debt/EBITDA (line 14) and the dividend rate (line 18) are almost the same.

Comparing the price performance of CDW and SNX over the past year shows that both companies are in negative territory (as is most of the high-tech industry), but CDW has outperformed SNX with a -5 return. % compared to -15% for CDW.

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Looking over a longer period of five years, CDW has significantly outperformed SNX, 163% to 45%.

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Wall Street Analysts’ ratings show that both companies are highly regarded by the investment community.

Wall Street analysts seem to really like these two stocks. The total of 18 buy recommendations and no sell recommendations indicates that most analysts think these two stocks have a bright future ahead of them.

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On the other hand, quants aren’t as excited as analysts, with a very modest “Hold” call on both stocks.

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Perhaps the quants know something that the other analysts don’t?

Synnex did well in the last recession compared to most of the tech industry

If you’re worried, like I am, about a recession looming in the next year or 18 months, knowing how a company fared in the last downturn can give you an investment perspective. Since CDW was not a public company during the last recession, I replaced tech industry stalwart Invesco QQQ Trust (QQQ).

December 2007 to June 2009 is the last recognized recessionary period and SNX fared extremely well compared to the broader tech industry, up 28%, while QQQ fell -23%. This would indicate that SNX (and probably also other technology vendors like CDW) would be somewhat immune to recessionary influences.

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Dividends and share buybacks

CDW has increased its dividend/distribution each year since it went public and that trend can be expected to continue in the future.

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The SNX dividend/distribution has been far less exemplary, and was in fact removed entirely in 2020.

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So if you’re looking for a consistent, constant dividend, CDW is easily the choice.

As for share buybacks, both companies have buybacks as the latest quarterly filings show.

Notice in the chart below, CDW claims that it will increase the dividend every year and, in fact, it increased it by 18% this month. They have also returned $1.5 billion to shareholders through share buybacks.

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CDW

And in the case of SNX, they have $317 million remaining on their repurchase authorization at a market value of $8.7 billion versus CDW’s market value of $23 billion.

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TD-Synnex

The share price since the Covid outbreak has risen for both companies.

Both companies have benefited from the end of Covid restrictions since the Covid lows of 2020, but SNX has achieved a significantly better increase from 59% to 32% for CDW.

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Conclusion:

High-tech distributors like CDW and SNX have done moderately well in recent years. In a consolidating industry, both are expanding through acquisitions. Synex of course merged with Tech Data in 2021 to become TD-Synnex, and as you can see from CDW’s presentation above, CDW also acquired Sirius Computer Solutions in 2021. In the high-tech distribution business, it’s “grow or die.”

As the number of distributors shrinks and the remaining ones grow, the competition should reduce somewhat and hopefully size efficiencies can be achieved. And both CDW and SNX are expanding their rather slim margins by growing the high-margin service side of the business.

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Looking at these two companies, I see that CDW is better off financially, especially on the margin side, and is increasing its dividend every year, which is always a plus for investors.

SNX after the merger of Tech Data is ready to grow rapidly and has shown that it will also expand its services business. But with the dividend reduced to zero in 2020, they seem to be a somewhat lower prospect than CDW.

Based on the analysis above, CDW is a buy and SNX is a hold.

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