Specialty technology distributor (POS/barcode, physical security, networking, CX) + Intelisys agency (recurring commissions) · North America & Brazil · Greenville, SC · FY ends June 30
Cycle-normalized EBITA (10-yr, FY17–26) · FCFF with working-capital-driven reinvestment · ROIC vs WACC · reverse DCF · valued 2026-10-15 (refresh of 10-14 build)
OVERVALUEDRISK: MEDIUM
Price $59.38 · Base $48.23 · Price is +23% vs base
What they do
ScanSource is a middleman between technology makers and the resellers who install that technology for businesses. It does not sell to end users. It buys hardware in bulk from vendors such as Zebra, Honeywell and Cisco. It holds the inventory and extends credit. It then sells to value-added resellers, integrators and service providers in the U.S., Canada and Brazil. FY26 (June year-end) net sales were $3.23B, split across two segments. Specialty Technology Solutions (~97% of sales, $3.12B) distributes barcode scanners, mobile computers, label printers, point-of-sale and payment terminals, video surveillance and access control, networking, and communications gear. Brazil is a meaningful part of this business. Intelisys & Advisory (~3% of sales, $101M) is a technology services agency. It signs up independent sales partners who sell cloud, connectivity, UCaaS/CCaaS and security subscriptions from hundreds of providers. ScanSource collects a monthly commission on that recurring billing. Revenue is booked net, so nearly all of it is gross profit (estimate). The MicroAge IT-solutions provider was bought for $220.5M and closed on 9/2/26. It is not in FY27 guidance.
The hardware business is a working-capital business. Gross margin is about 10–11% (estimate). It is paid for with inventory and receivables of roughly 17% of sales, and it earns a ~3% operating margin. The agency throws off high-margin, capital-light cash. Recurring revenue was 33.7% of FY26 gross profit on 13.6% consolidated gross margin. The key sensitivities are small- and mid-business and retail capex cycles (POS refreshes, warehouse automation, security upgrades), vendor channel policy (vendors going direct or cutting distributor rebates), interest rates (which set the cost of financing inventory and customer credit), the BRL, and the price paid for acquisitions.
The Take — Good operator, full price. The stock already discounts the bull case.
Not a peak-cycle trap like AVT — but not deep value either. ScanSource's top line has gone nowhere for a decade (FY17 $3.57B → FY26 $3.23B, ~0% trend) while the business quietly re-mixed toward higher-margin, capital-light recurring revenue (Intelisys agency commissions; recurring now 34% of gross profit). That re-mix is real: EBITA margin has run 3.65% over the last five years vs 3.24% over ten, and the balance sheet is clean (net debt ~$13M at June, ~0x EBITDA). FY26 FCF of $114M and $98M of buybacks (≈8% of the float) are shareholder-friendly. This is a well-run company.
The problem is the price, not the business. We normalize EBITA at 3.50% — above the 10-yr average, crediting the mix shift, but below the FY22–23 4.0% peak (pandemic-era supply tightness + price). Base case grows 8% in FY27 (mid of the 6–10% guide) then fades to 2.5%; that is worth $48.23. Bull — 4.0% margins on sustained mid-single-digit growth, essentially management's EBITDA trajectory delivered and held — is $58.48, i.e. roughly the current price. The reverse DCF says $59.38 needs a 4.4% EBITA margin forever on the base growth path, a level ScanSource has never printed in ten years, or a 8.1% WACC.
ROIC vs WACC settles it: on all invested capital (including ~$300M of acquired goodwill/intangibles) normalized after-tax ROIC is ~8.8% — roughly equal to the 9.4% WACC. Ex-goodwill it's mid-teens, which is why the company's own "adjusted ROIC" reads 14.7%. But acquisitions are capital: MicroAge ($220.5M cash, closed in the September quarter, revolver-funded, financials undisclosed) adds another ~25% to the capital base for an unknown return. We treat it as value-neutral (paid fair value); if it earns below WACC it subtracts.
What changed since the 10/14 valuation: the price, slightly. Nothing else. The stock is down $0.78 to $59.38 (−1.3%), so the premium to base narrows from +25% to +23%. The verdict stays OVERVALUED. No new filings, guidance, pre-announcement or deal news have come out since the MicroAge close (9/2). FY27 guidance is unchanged: sales +6–10%, adjusted EBITDA $158–165M, FCF ≥$85M, all ex-MicroAge. The model was re-run on identical inputs and returns $48.23 base, a bear/bull range of $37.35/$58.48 and a $48.07 probability-weighted value. Recomputing WACC at today's $1.20B market cap leaves it at 9.36%. Shares outstanding are 20.14M per Robinhood, which matches the 20.6M diluted count we use. Two additions this time: a "What they do" section and a WACC × terminal-growth grid. The Q1 FY27 print is now on the Robinhood calendar for Nov 5 (pre-market, unconfirmed), consensus EPS $1.12.
Call: HOLD / no new money. Accumulate at ≤$48 (base value) and add aggressively at ≤$42, where the bear-case floor and buyback support sit. Trim above ~$65; the 52-week high is $66.78, set on the 8/20 print. At $59 a holder is being paid for the bull case and nothing more. The PEG screen looks good only because buybacks have driven EPS growth (diluted shares down ~14% in two years) while revenue is flat. Options: SCSC chains are thin. For holders, the defined-risk expression is a covered call about 10% OTM (~$65 strike, Dec or Jan) written after the Nov 5 Q1 FY27 print, so you are not short the earnings gap. It monetizes the full valuation. A bear call spread above $65 is the only bearish structure worth considering, and only if the bid/ask is tight enough. Do not short naked. Upside surprise to watch: a MicroAge disclosure showing ≥15% pre-tax returns, and EBITDA guidance moving to a ≥5% margin.
What the "inventory" really is: $522M of hardware inventory + $770M of receivables − $753M payables ≈ $540M of operating working capital (16.7% of sales) — plus ~$300M of acquired goodwill/intangibles for the Intelisys/agency book. The agency side needs almost no working capital; the hardware side is a classic WC-funded distributor whose cash flow is counter-cyclical (FY24: +$363M FCF as inventory unwound).
WACC and the normalized margin are the only drivers that matter; working-capital intensity and terminal assumptions barely move value. Nothing in the realistic range reaches $59 except the high-margin/low-WACC corner of the grid.
Green = at least 5% above the $59.38 price; yellow = within ±5%; orange = up to 30% below; red = more than 30% below. Normalized margin applies from FY31 and in the terminal year; FY27–30 follow the base path. Reverse DCF: at the base WACC of 9.36%, the price requires a 4.41% normalized EBIT margin forever. At the base margin, it requires a WACC of 8.13%.
Sensitivity — value/share: WACC × terminal growth
WACC ↓ / terminal g →
1.5%
2.0%
2.5%
3.0%
8.36%
$55.1
$55.9
$56.9
$58.1
8.86%
$50.9
$51.5
$52.2
$53.0
9.36% (base)
$47.3
$47.8
$48.2
$48.8
9.86%
$44.2
$44.5
$44.8
$45.1
10.36%
$41.4
$41.6
$41.8
$42.0
Same color key. Terminal reinvestment is g ÷ 11% stable ROIC. Growth barely matters here, because a return on capital only modestly above WACC means extra growth creates little value. Even 3% g at an 8.4% WACC gets to only $58.
Cycle history — EBITA margin and working-capital intensity
Bars = EBITA margin (GAAP + intangible amortization + FY20 goodwill impairment) (green = above normalized). Orange row = operating working capital (receivables + inventory − payables) as % of sales. Dashed = 10-yr normalized level.
Normalization worksheet, working capital & FCF ($M)
FY
Sales
GAAP EBIT
Intang. amort
Impair.
EBITA
EBITA %
Op. NWC
NWC/Sales
Pre-tax ret. on NWC
OCF
FCF
SBC
FCF−SBC
FY17*
3,568
88.2
15.5
0
103.7
2.91%
655
18.4%
15.8%
FY18
3,165
69.0
18.7
0
87.7
2.77%
679
21.5%
12.9%
31
FY19
3,250
94.7
17.9
0
112.6
3.46%
589
18.1%
19.1%
16
FY20
3,048
-65.0
20.0
119
74.0
2.43%
444
14.6%
16.7%
182
FY21
3,151
61.5
19.5
0
81.0
2.57%
404
12.8%
20.0%
117
FY22
3,530
122.2
17.9
0
140.1
3.97%
630
17.8%
22.2%
-124
-131
11.7
-143
FY23
3,788
135.9
16.7
0
152.6
4.03%
820
21.6%
18.6%
-36
-46
11.2
-57
FY24
3,260
90.3
15.7
0
106.0
3.25%
506
15.5%
20.9%
372
363
9.5
354
FY25
3,041
85.2
19.2
0
104.4
3.43%
521
17.1%
20.0%
112
104
11.1
93
FY26
3,226
98.6
16.7
0
115.3
3.57%
539
16.7%
21.4%
123
114
14.1
100
10-yr avg
3,303
78.1
107.7
3.24%
17.4%
81 (5y)
69 (5y)
Sources: SEC XBRL companyconcept (RevenueFromContract…, OperatingIncomeLoss, AmortizationOfIntangibleAssets, GoodwillImpairmentLoss, AR, Inventory, AP, continuing-ops OCF) and FY26 8-K Ex.99.1; capex/SBC from stockanalysis FY22–26. *FY17 not recast for the FY20 Latin-America divestiture (revenue/WC include discontinued ops; FY18 WC also pre-recast). EBITA keeps SBC as an expense; company "non-GAAP operating income" (FY26 $119.7M) additionally excludes ~$4M of acquisition/other items.
Normalization choices. 10-yr EBITA margin 3.24% (FY20 ex-$119M goodwill impairment); 5-yr 3.65% includes the FY22–23 supply-crunch peak (~4.0%). Normalized at 3.50% — a deliberate tilt toward the recent mix (Intelisys recurring commissions ≈ 34% of GP). On FY26 sales → normalized EBITA ≈ $113M. Cross-check vs management: FY27 adjusted EBITDA guide $158–165M (4.6–4.65%) adds back SBC (~$14M), depreciation (~$7M) and other items (~$11M); stripped to our EBITA definition that's ~$128M, or ~3.7% — slightly above normalized, consistent with an early-upcycle year.
Working-capital intensity: operating NWC averaged 17.4% of sales (12.8%–21.6%); model uses sales-to-capital 5.0 (20¢ per incremental $1 of sales, incl. a little fixed capital). Pre-tax return on NWC 13–22% — healthy, but goodwill-heavy acquisitions dilute it at the total-capital level.
FCF reality: FY22–26 cumulative FCF $404M (avg $81M/yr), but it's lumpy: −$177M across FY22–23 (WC build), +$363M in FY24 (release). The 5-yr average after SBC is ~$69M — a ~5.6% yield on today's market cap, about what a fairly priced, low-growth distributor should yield at a 9.4% WACC.
ROIC vs WACC
FY
EBITA
NOPAT (27%)
Invested capital
ROIC
ROIC ex-goodwill/intang.
vs WACC 9.36%
FY22
140.1
102.3
1,056
9.7%
13.5%
+0.3pt
FY23
152.6
111.4
1,213
9.2%
12.0%
-0.2pt
FY24
106.0
77.4
893
8.7%
11.9%
-0.7pt
FY25
104.4
76.2
927
8.2%
12.0%
-1.1pt
FY26
115.3
84.2
933
9.0%
13.5%
-0.3pt
Normalized (FY26 sales)
112.9
82.4
933
8.8%
13.2%
-0.5pt
Invested capital = equity + debt + leases − cash (book). Ex-goodwill/intangibles ROIC is high (the hardware/agency engine is good); total ROIC ≈ WACC because acquired goodwill earns little incremental return. Terminal stable ROIC set at 11% (modest moat from agency/recurring mix).
Base-case FCFF ($M)
Year
Growth
Revenue
EBIT %
EBIT
NOPAT
Reinvest (WC+cap)
FCFF
PV
FY27
+8.0%
3,484
3.65%
127
93
52
41
38
FY28
+4.0%
3,624
3.60%
130
95
28
67
56
FY29
+3.5%
3,750
3.55%
133
97
25
72
55
FY30
+3.0%
3,863
3.53%
136
100
23
77
54
FY31
+3.0%
3,979
3.52%
140
102
23
79
50
FY32
+3.0%
4,098
3.50%
143
105
24
81
47
FY33
+3.0%
4,221
3.50%
148
108
25
83
45
FY34
+2.5%
4,327
3.50%
151
111
21
89
44
FY35
+2.5%
4,435
3.50%
155
113
22
92
41
FY36
+2.5%
4,546
3.50%
159
116
22
94
38
Terminal
g 2.5%, stable ROIC 11.0% → reinvest 23% of NOPAT, WACC 9.36%
TV 1,341
548
PV explicit 468 + PV terminal 548 = operating assets 1,016. Terminal share 54% (below the 70% flag; r 9.36% > g 2.5%). Tax 27% (guide 27.5–28.5%). Reinvestment = Δsales ÷ 5.0. MicroAge excluded from both operations and net debt (value-neutral at the $220.5M paid); post-close net debt ~$235M.
Cost of capital
Risk-free (10Y UST after the Sept-2026 spike)
5.20%
Mature ERP + revenue-weighted country risk premium
4.40% + 0.35%
Bottom-up unlevered beta (specialty tech/electronics distribution, Damodaran industry averages)
0.90
Market D/E (debt + leases ÷ market cap $1,239M at 10/14; 9.3% at $1,196M on 10/15, WACC unchanged to the bp)