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Can Arrow Electronics (ARW) Sustain its Momentum in '17?
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Arrow Electronics Inc. (ARW - Free Report) is one of the technology companies that demonstrated remarkable share price performance last year. The company has generated high returns for investors in 2016, and has the potential to exceed expectations in the days ahead.
Last year, the stock surged roughly 31.6% outperforming the Zacks categorized Electronics Parts Distribution industry, which witnessed a gain of 27%.
What Drove the Stock?
Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. The company is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals.
It posted positive earnings surprises in three of the last four quarters, with an average positive surprise of 2.86%.
Last quarter, the company reported splendid results. Its top line and bottom line not only came ahead of the respective Zacks Consensus Estimate, but also marked solid year-over-year improvement.
Moreover, the company issued an encouraging fourth-quarter 2016 guidance. Total sales are expected between $6.3 billion and $6.7 billion, while non-GAAP earnings per share are projected in a range of $1.92 to $2.08.
Additionally, the stock looks attractive from a valuation perspective. This is because Arrow Electronics currently trades at a forward P/E of 10.3x compared with the industry group average of 12.2x, which signifies a huge upward potential. The stock’s long-term earnings per share growth rate is 7.4% and it carries a VGM Style Score of “B”.
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 Electronics’ distribution channels for marketing their products. We consider that 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 in difficult times. Hence, we suggest investors to hold on to the stock as of now.
A couple of better-ranked stocks in the broader technology sector include Applied Optoelectronic Inc. (AAOI - Free Report) and Broadcom Ltd. (AVGO - Free Report) , both of which sport a Zacks Rank #1. Applied Optoelectronic and Broadcom have long-term earnings per share growth rate of 18.3% and 13.6%, respectively.
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How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>
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Can Arrow Electronics (ARW) Sustain its Momentum in '17?
Arrow Electronics Inc. (ARW - Free Report) is one of the technology companies that demonstrated remarkable share price performance last year. The company has generated high returns for investors in 2016, and has the potential to exceed expectations in the days ahead.
Last year, the stock surged roughly 31.6% outperforming the Zacks categorized Electronics Parts Distribution industry, which witnessed a gain of 27%.
What Drove the Stock?
Arrow Electronics is one of the world’s largest distributors of electronic components and enterprise computing products. The company is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals.
It posted positive earnings surprises in three of the last four quarters, with an average positive surprise of 2.86%.
Last quarter, the company reported splendid results. Its top line and bottom line not only came ahead of the respective Zacks Consensus Estimate, but also marked solid year-over-year improvement.
Moreover, the company issued an encouraging fourth-quarter 2016 guidance. Total sales are expected between $6.3 billion and $6.7 billion, while non-GAAP earnings per share are projected in a range of $1.92 to $2.08.
Additionally, the stock looks attractive from a valuation perspective. This is because Arrow Electronics currently trades at a forward P/E of 10.3x compared with the industry group average of 12.2x, which signifies a huge upward potential. The stock’s long-term earnings per share growth rate is 7.4% and it carries a VGM Style Score of “B”.
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 Electronics’ distribution channels for marketing their products. We consider that 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 in difficult times. Hence, we suggest investors to hold on to the stock as of now.
The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
A couple of better-ranked stocks in the broader technology sector include Applied Optoelectronic Inc. (AAOI - Free Report) and Broadcom Ltd. (AVGO - Free Report) , both of which sport a Zacks Rank #1. Applied Optoelectronic and Broadcom have long-term earnings per share growth rate of 18.3% and 13.6%, respectively.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>