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Analyst Blog

Avnet, Inc. (AVT - Analyst Report), a world-leading supplier of electronic components and computer products, recently initiated a cash tender offer through one of its wholly-owned operating units to acquire all outstanding shares of Internix, Inc. The tender offer, which is cleared by the Board of Internix is slated to expire in August 2012.

Internix is a Japan-based company which designs and distributes electronic components to various original equipment manufacturers. The company generated over $260 million in revenues for 12 months ended March 2012.

Whilst we await further details on the transaction, this acquisition is expected to be immediately accretive to Avnet’s earnings and bolster the company to achieve its target of 12.5% as return on capital (ROC) in two years time. Avnet shall be able to establish a stronger position in the Japanese economy, thereby expanding its market share substantially in the EMEA region through this venture.   Besides, the acquisition of Internix will also help Avnet in augmenting its product base.

It is to be noted that the EMEA region has been a major point of concern for the company of late. Sales across this area during the first nine months of fiscal 2012 dropped around 8.1% to reach $5.69 billion compared to the same period last year.

This deteriorating demand in the European economy was the sole reason for the 4.3% annual downfall reported in the company’s Electronics Marketing (EM) segment in its third fiscal quarter. However, we can still be optimistic that the company’s proactive advances will augment its financial performance in the upcoming quarter.

The company pertains to an industry, where ominous competition is prevalent. Hence, Avnet should stay cautious of big players, such as Wesco Intl Inc. (WCC - Analyst Report), Richardson Electronics Ltd. and Anixter International Inc. (AXE - Snapshot Report) in the industry.

The current Zacks Consensus Estimates for the fourth quarter of fiscal 2012 and for fiscal 2012 are $1.09 and $4.17, respectively. The company currently retains a Zacks #4 Rank, which translates into a short-term “Sell” rating. However, we are maintaining a long-term “Neutral” recommendation on the stock.

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