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Avnet (AVT) Downgraded to Strong Sell: Time to Offload?

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On Dec 24, 2016, Zacks Investment Research downgraded electronics and IT distributor Avnet Inc. (AVT - Free Report) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Avnet’s share price movement has been not much impressive. Year to date, its shares have gained just 12.2% compared with 28.7% increase recorded by the Zacks categorized Electronics Parts distributor industry.

This was possibly due to the company’s unimpressive results in the first quarter of fiscal 2017. While the bottom line managed to surpass the Zacks Consensus Estimate, the top line fell short of the same. Moreover, both earnings and revenues declined on a year-over-year basis, primarily due to the impact of an extra week of sales in the year-ago quarter.

In our opinion, though the company’s recent decision to sell its Technology Solution division will allow it to focus on high growth areas such as marketing electronic components and related products in the supply chain, it will take time to reflect in the company’s bottom line performance.

Furthermore, 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 is subject to significant market upturns and downturns.

We believe that the aforementioned factors led to downward revisions in Avnet’s estimates. Over the past 60 days, the Zacks Consensus Estimate for fiscal 2017 went down 24.8% to $3.24 per share.

The stock carries a Value Growth Score of “D.” Furthermore, competition from the likes of Arrow Electronics Inc. (ARW - Free Report) also remains a headwind.

Stocks to Consider

Better-ranked stocks in the technology sector are Micron Technology, Inc. (MU - Free Report) and Broadcom Limited (AVGO - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Micron and Broadcom have a long-term expected earnings per share growth rate of 10% and 13.59%, respectively.

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