Synnex (SNX) - Get Report , an information technology supply chain services company, will report fiscal first-quarter earnings after the closing bell Monday. Its shares are trading near 52-week highs, so taking some profits off the table before Monday would be smart.
Why? The stock may have peaked. Even though the company has missed Wall Street's revenue estimates in four straight quarters, shares, at around $96, are up 6% for the year to date and 21% over the past 52 weeks. Full-year profits are still growing at high-single-digit rates, but analyst estimates have started to come down.
For the quarter that ended February, analysts, on average, expect the company to earn $1.37 per share on revenue of $3.26 billion, translating to an earnings decline of 6%, while revenue is projected to rise about 2%. For the full year, ending November, earnings are projected to climb 7.8% year over year to $6.77 per share, while revenue of $13.96 billion would mark a year-over-year increase of 4.7%.
For shares to maintain their upward trajectory, management guidance for the next quarter and fiscal year is important. But over the past three months, analysts have reduced the company's estimates for both the just-ended quarter and quarter ending in May by 11% and 3.6%, respectively. For fiscal 2016, estimates have been reduced to $6.77 from $6.96 at the start of the quarter.
Why are estimates coming down? Some of Synnex' customers, including global corporations, have been negatively hit by the strong U.S. dollar, devaluing their overseas sales. In turn, this has hit Synnex's revenue as those customers adjust their spending budgets.
For Synnex, which has struggled with revenue as a result, this doesn't reflect poorly on its business. The strong dollar is hurting many corporations. At the same time, and purely from an investment perspective, investors should now adjust their own expectations about what the company can deliver this fiscal year and in fiscal year 2017.
Unless revenue, which is projected to decline in 2017 by 10 basis points, picks up, Synnex will struggle to grow its profits. Betting on the dollar to weaken is not a good wager, especially with 30%, 12-month stock gains currently on the table.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.