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Arrow Electronics (ARW) Well Poised to Gain: Here's Why
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Retaining stocks that are fundamentally strong and witnessing price accretion in one’s portfolio is a sensible decision. Arrow Electronics Inc. (ARW - Free Report) seems to be one such stock that investors need to hold on to if they are looking to reap long-term gains. Though the stock is plagued by several headwinds, these are short term and transitory in nature and still leave space for this Zacks Rank #3 (Hold) company to gain in the long run.
Arrow Electronics’ stock price history reveals that the company is doing well for a considerable period of time. In fact, so far in 2016, shares of Arrow Electronics have risen 32.7%, outperforming the Zacks Categorized Electronic Parts Distributor industry, which is up 29.4%.
What’s Working in its Favor?
The electronic component distributor’s third-quarter 2016 results beat estimates on both fronts. Also, the metrics improved year over year.
Arrow Electronics’ adjusted earnings of $1.56 per share beat the Zacks Consensus Estimate of $1.51. Also, earnings increased 11.4% from the year-ago tally of $1.40. Arrow Electronics’ revenues, on a reported basis, were $5.936 billion, up 4.2% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $5.854 billion.
Moreover, the company issued an encouraging fourth-quarter 2016 outlook. Total sales are expected between $6.3 billion and $6.7 billion. The Zacks Consensus Estimate is pegged at $6.52 billion. The company expects non-GAAP earnings per share in a range of $1.92 to $2.08. The Zacks Consensus Estimate is pegged at $2.01.
Moreover, the stock looks attractive from a valuation perspective. This is because Arrow Electronics currently trades at a forward P/E of 10.82x as against the industry group average of 15.30x, which signifies a huge upward potential.
The stock’s long-term earnings per share growth rate is 10.4% and it carries a Value Style Score of “A.” The company also has an average positive surprise of 2.86%.
Challenges
The company has always had a good amount of debt on its balance sheet. Its long-term debt (including short-term obligations) position was $2.78 billion as of Oct 1, 2016. Liquidity is low, since cash and liquid assets are just a fraction of its total assets. We think that the company has limited financial flexibility because of its high debt burden and further increases in debt could make investment in the shares risky.
Further, uncertain economic conditions and competition from the likes of Avnet (AVT - Free Report) remain concerns.
Our Take
Notably, original equipment manufacturers, contract manufacturers and commercial customers are selecting Arrow’s distribution channels for marketing their products. The company’s core strength in providing best-in-class services and easy-to-acquire technologies should drive growth further.
Meanwhile, incremental sales from strategic acquisitions, such as Computerlinks, are expected to boost the top line, going forward.
We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as of now.
Cirrus Logic and FormFactor have a long-term earnings per share growth rate of 17.5% and 12%, respectively.
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Arrow Electronics (ARW) Well Poised to Gain: Here's Why
Retaining stocks that are fundamentally strong and witnessing price accretion in one’s portfolio is a sensible decision. Arrow Electronics Inc. (ARW - Free Report) seems to be one such stock that investors need to hold on to if they are looking to reap long-term gains. Though the stock is plagued by several headwinds, these are short term and transitory in nature and still leave space for this Zacks Rank #3 (Hold) company to gain in the long run.
Arrow Electronics’ stock price history reveals that the company is doing well for a considerable period of time. In fact, so far in 2016, shares of Arrow Electronics have risen 32.7%, outperforming the Zacks Categorized Electronic Parts Distributor industry, which is up 29.4%.
What’s Working in its Favor?
The electronic component distributor’s third-quarter 2016 results beat estimates on both fronts. Also, the metrics improved year over year.
Arrow Electronics’ adjusted earnings of $1.56 per share beat the Zacks Consensus Estimate of $1.51. Also, earnings increased 11.4% from the year-ago tally of $1.40. Arrow Electronics’ revenues, on a reported basis, were $5.936 billion, up 4.2% from the year-ago quarter. Quarterly revenues also surpassed the Zacks Consensus Estimate of $5.854 billion.
Moreover, the company issued an encouraging fourth-quarter 2016 outlook. Total sales are expected between $6.3 billion and $6.7 billion. The Zacks Consensus Estimate is pegged at $6.52 billion. The company expects non-GAAP earnings per share in a range of $1.92 to $2.08. The Zacks Consensus Estimate is pegged at $2.01.
Moreover, the stock looks attractive from a valuation perspective. This is because Arrow Electronics currently trades at a forward P/E of 10.82x as against the industry group average of 15.30x, which signifies a huge upward potential.
The stock’s long-term earnings per share growth rate is 10.4% and it carries a Value Style Score of “A.” The company also has an average positive surprise of 2.86%.
Challenges
The company has always had a good amount of debt on its balance sheet. Its long-term debt (including short-term obligations) position was $2.78 billion as of Oct 1, 2016. Liquidity is low, since cash and liquid assets are just a fraction of its total assets. We think that the company has limited financial flexibility because of its high debt burden and further increases in debt could make investment in the shares risky.
Further, uncertain economic conditions and competition from the likes of Avnet (AVT - Free Report) remain concerns.
Our Take
Notably, original equipment manufacturers, contract manufacturers and commercial customers are selecting Arrow’s distribution channels for marketing their products. The company’s core strength in providing best-in-class services and easy-to-acquire technologies should drive growth further.
Meanwhile, incremental sales from strategic acquisitions, such as Computerlinks, are expected to boost the top line, going forward.
We expect the aforementioned factors to help the company sustain its strong momentum and stay afloat even amid difficult times. Hence, we suggest investors to hold on to the stock as of now.
Stocks to Consider
Better-ranked stocks in the broader technology sector are Cirrus Logic Inc. (CRUS - Free Report) and FormFactor Inc. (FORM - Free Report) , both of which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here
Cirrus Logic and FormFactor have a long-term earnings per share growth rate of 17.5% and 12%, respectively.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>