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Analyst Blog

On Jun 20, 2014, we issued an updated research report on Avnet Inc.

Avnet is a key distributor of electronic components and computer products. It offers a wide range of products such as semiconductors, computer products, passives and electromechanical connectors. Thus, the company’s revenues depend on the overall IT spending environment.

U.S. research firm Gartner expects the overall IT spending to grow 3.2% in 2014. The improvement will mostly be driven by enterprise software and IT services. We believe that the company is well positioned to capitalize on the opportunity and maintain its leadership position.

These predictions bode well for Avnet’s Technology Solutions segment deriving revenues from the distribution of enterprise computing servers and systems, software, storage and related services. During the first nine months of fiscal 2014, revenues from the segment increased 6.2% from the year-ago period.

Avnet’s acquisition strategy is also expected to contribute significantly to its revenue stream. During the first nine months of fiscal 2014, Avnet acquired three companies with annualized revenues of approximately $490.0 million. These acquisitions are expected to enhance its performance and augment its product base and operational network.

Nonetheless, a significant portion of the company’s revenues comes from the sale of semiconductors, which is a cyclical industry characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns

Moreover, economic slowdown has significantly affected Avnet’s results in the past. Lower demand for data center solutions and semiconductor components can further lower revenues. Therefore, the declining revenues have an effect on margins and thereby, earnings. Additionally, competition from Arrow Electronics and Ingram Micro remain the headwinds.

Currently, Avnet has a Zacks Rank #4 (Sell). Investors may consider a better-ranked stock like Micron Technology sporting a Zacks Rank #1 (Strong Buy).

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