Shares of ScanSource SCSC hit a new 52-week high of $53.82 yesterday, before closing lower at $53.11. SCSC stock has gained 34.1% in the year-to-date period compared with the industry’s 12.7% growth and the S&P 500’s 28.6% rise. Meanwhile, the Industrial Products sector has gained 12.7%.
ScanSource’s recent share price performance was bolstered by upbeat first-quarter fiscal 2025 results. Despite lower revenues due to cautious technology spending, SCSC delivered improved margins and earnings aided by its efforts to lower costs and debt levels.
ScanSource also completed the acquisition of two high-margin, recurring revenue businesses, which also contributed to the stock’s gain.
SCSC Stock’s YTD Price Performance
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SCSC is currently trading above the 50-day and 200-day simple moving averages, signaling strong upward momentum and price stability.
This technical strength indicates positive market sentiment and confidence in ScanSource’s financial health and prospects.
SCSC Stock Trading Above 50 and 200-Day Moving Averages
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Let us take a look into the factors that are driving SCSC stock.
ScanSource reported its first-quarter fiscal 2025 results on Nov. 7, 2024. The company reported adjusted earnings per share of 84 cents per share, which beat the Zacks Consensus Estimate of 77 cents. Earnings improved 14% year over year. The improvement in earnings was attributed to a favorable revenue mix, decreased interest expenses and a lower share count.
This was commendable considering that SCSC witnessed an 11.5% decline in net sales in the quarter to $776 million due to a weak demand environment. The figure also fell short of the Zacks Consensus Estimate of $799 million. However, net sales were up 4% sequentially, suggesting potential demand improvement.
Net sales for products and services decreased 12.5% year over year while recurring revenues increased 18.8% . Specialty Technology Solutions' net sales decreased 11.9% year over year to $752.3 million due to ongoing weak demand amid a cautious technology spending environment. Intelisys & Advisory net sales increased 4.1% year over year to $23.3 million, primarily from an increase in Intelisys sales.
The gross margin was 13.10% in the first quarter of fiscal 2025 compared with 12.15% in the prior-year quarter. The expansion reflects a higher contribution of recurring revenues in the overall revenue mix. Adjusted EBITDA margin expanded 62 basis points year over year to 4.6%.
As of Sept. 30, 2024, ScanSource had cash and cash equivalents of $145.0 million and total debt of $143.6 million. Its total debt-to-total capital was 13.5% at the end of the first quarter of fiscal 2025, lower than 21.3% in the year-ago quarter. ScanSource also had share repurchases of $28.1 million for the first quarter of fiscal 2025.
ScanSource’s Recent Acquisitions to Aid Growth
In the first quarter of fiscal 2025, ScanSource completed the acquisition of Resourcive, a leading technology advisor. Resourcive delivers strategic IT sourcing solutions to the mid-market and enterprise, advising clients on value creation strategies that are enabled by technology. With this acquisition, ScanSource is creating the advisory channel model of the future.
ScanSource also acquired Advantix, which enables mobility value-added resellers to sell hardware combined with the recurring revenue stream from data connectivity. With this acquisition, the company created the Integrated Solutions Group (“ISG”). It is focused on developing solutions and services that provide channel partners the opportunity to wrap additional value around their hardware offerings.
SCSC Affirms FY25 Guidance
ScanSource affirmed its fiscal 2025 revenues to be in the range of $3.1-$3.5 billion. The midpoint of the guidance indicates year-over-year growth of 1%. Adjusted EBITDA is expected to be between $140 million and $160 million. The midpoint of the range implies 7% growth from fiscal 2024.
Rising Estimates Instill Confidence in SCSC Earnings
The Zacks Consensus Estimate for ScanSource’s fiscal 2025 and 2026 earnings has moved up over the past 60 days. This reflects better-than-expected first-quarter results, a favorable mix of recurring revenues and gains from cost-cutting actions.
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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
The Zacks Consensus Estimate for fiscal 2025 implies 14% year-over-year growth and the same for fiscal 2026 indicates 8.7% growth.
SCSC Stock’s Attractive Valuation
ScanSource is currently trading at forward 12-month earnings multiple of 14.56X, a discount to the industry’s 28.19X. SCSC’s current Value Score of A further validates its appeal.
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What Should Be Your Approach for SCSC Stock?
Despite the soft demand environment, the company’s shifting business mix and operational execution and cost-saving efforts are driving stronger earnings and cash flow. Efforts to lower debt while returning capital to shareholders and acquisitions are also commendable. Given its attractive valuation and upward trajectory in its earnings estimates, SCSC is a solid stock to add to one’s portfolio. SCSC currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Key Picks in the Sector
Some other top-ranked stocks from the Industrial Products sector are Graham Corporation GHM, Federal Signal Corporation FSS and RBC Bearings Incorporated RBC. GHM sports a Zacks Rank of 1 while FSS and RBC have a Zacks Rank #2 (Buy) at present.
Graham has an average trailing four-quarter earnings surprise of 101.85%. The Zacks Consensus Estimate for GHM’s 2024 earnings is pinned at $1.03 per share, which indicates year-over-year growth of 145.2%. The company’s shares have gained 136.8% in the year-to-date period.
Federal Signal has an average trailing four-quarter earnings surprise of 11.8%. The consensus estimate for FSS’ 2024 earnings is pinned at $3.34 per share, which indicates year-over-year growth of 29.5%. The company’s shares have gained 27% this year.
The Zacks Consensus Estimate for RBC Bearings’ fiscal 2025 earnings is pegged at $9.80 per share. The company has a trailing four-quarter average earnings surprise of 2.5%. RBC’s shares have gained 18% in the year-to-date period.
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