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Wednesday’s stronger-than-expected results from personal computer distributor Tech Data (NASDAQ:TECD) are continuing to draw enthusiasm from those who had perhaps been looking for a port in the gloomy seas of the current credit crunch, bracing for a downturn in corporate spending.

But for what is still a low-margin distribution business, the stock’s current valuation seems to leave limited upside after Wednesday’s jump in the shares.

  • In a report titled “Slowdown? What Slowdown?” Richard Kugele with Needham & Co., reiterates his Strong Buy rating and $43 price target, and zeros in on the macro-economic implications, writing that “Despite Wall Street concerns on spending following a tightening of credit markets, TECD indicated demand remained consistent across geographies, product lines and customers in fiscal second quarter.” He’s raising his earnings and sales estimates for this year and next and says his price target represents a multiple of 1.3x TechD’s tangible book value.
  • Still others see this as just a company-specific story: Goldman Sachs’s Min Park says that after an 11% decline since last November, when Goldman put out the Sell sign on Tech Data shares, the stock deserves to be upgraded to Neutral, even though, “July quarter results are likely a near term high point in the turnaround.” Based on an expectation for higher profit margin, and higher revenue, Park is boosting the bank’s price target on the stock from $38 to $40. “We expect high single-digit revenue growth through the end of fiscal 2008 and mid single-digit growth in fiscal 2009, which combined with improving margins, as well as lower interest expense and tax rate should improve earnings.” Park’s earnings numbers are going up, and at $2.38 for the current fiscal year, those numbers are actually higher than Kugele’s. But, "At the same time, we think a lot of the restructuring is already baked into the shares and Tech Data will need to show more consistency in its results before the stock can move significantly higher."
  • Likewise, R.W. Baird & Co. Daniel Renouard analyst is keeping the stock at Neutral, with a $40 price target, stating that the company’s turnaround indeed looks “achievable […] However, we believe current valuation of 14x F08E EPS accurately reflects turnaround potential, and we remain on the sidelines.”
  • TECD 1-yr chart:
    tecd chart