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Can Margin Expansion Sustain Avnet's Earnings Growth in FY26?
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Key Takeaways
AVT expanded operating margin for a third straight quarter despite lower gross margins from sales mix changes.
AVT expects further margin gains from SG&A discipline, improving demand and stronger book-to-bill trends.
Avnet targets higher margins in EC and Farnell while maintaining its niche against Arrow and TD SYNNEX.
Avnet's (AVT - Free Report) profitability continued to improve in the third quarter of fiscal 2026, even as gross margins remained under pressure, highlighting the benefits of disciplined cost management and operating leverage. The company reported an adjusted operating margin of 3.1%, up 38 basis points (bps) sequentially, marking its third consecutive quarter of expansion. Operating income grew more than twice as fast as sales, reflecting stronger execution across the business.
However, Avnet’s gross margin declined 68 bps year over year to 10.4%, primarily due to a greater mix of lower-margin Asia sales and memory price pass-throughs. Management noted that approximately half of sequential sales growth and one-quarter of year-over-year sales growth came from higher memory prices.
The company's largest Electronic Components (EC) segment expanded its operating margin to 3.5% from 3.2% in the previous quarter, driven by improving business conditions in Europe. Management expects EC operating margins to reach its 4% near-term target within the next fiscal year. Meanwhile, Farnell's operating margin improved to 5.2%, its sixth consecutive quarter of expansion, with management targeting a return to double-digit margins by the second half of 2027.
Looking ahead, rising book-to-bill ratios, improving lead times, stronger demand creation activity and continued SG&A discipline should support further operating margin expansion, even if gross margin remains constrained by product and geographic mix. Alongside this, AVT should also monitor how competitors are adapting to market dynamics and stay ahead of any new advancements.
How Competitors Fare Against Avnet
Avnet operates in a competitive technology distribution market where it competes with global component distributors as well as broader IT distributors, including Arrow Electronics (ARW - Free Report) and TD SYNNEX (SNX - Free Report) . However, Avnet benefits from the niche it has created for itself, which helps to protect its margins.
Arrow Electronics competes directly with Avnet in electronic component distribution, semiconductor supply, embedded computing and engineering services. Both Arrow Electronics and Avnet serve OEMs, industrial manufacturers, automotive suppliers, communications equipment vendors and data center customers.
Avnet comes into crossroads with TD SYNNEX in the broader AI infrastructure value chain. AVT plays its role much earlier in the technology value chain by supplying electronic components directly to equipment manufacturers, making the overlap minimal with TD SYNNEX. Given these dynamics, Avnet has little to worry right now.
AVT’s Price Performance, Valuation and Estimates
Avnet shares have soared 86.9% in the year-to-date period, outperforming the Zacks Electronics - Parts Distribution industry’s 60.2% growth.
Avnet YTD Performance Chart
Image Source: Zacks Investment Research
Despite this outperformance, AVT stock is trading at a price-to-sales multiple of 0.26X, which is below the P/S multiple of industry’s P/S multiple of 0.39X. The undervaluation is further substantiated by Zacks Value Score of B.
AVT Forward 12 Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AVT’s fiscal 2026 earnings is pegged at $5.12, implying year-over-year growth of 49%. The estimate has remained unchanged for the past 60 days.
View the Zacks #1 Rank List
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Can Margin Expansion Sustain Avnet's Earnings Growth in FY26?
Key Takeaways
Avnet's (AVT - Free Report) profitability continued to improve in the third quarter of fiscal 2026, even as gross margins remained under pressure, highlighting the benefits of disciplined cost management and operating leverage. The company reported an adjusted operating margin of 3.1%, up 38 basis points (bps) sequentially, marking its third consecutive quarter of expansion. Operating income grew more than twice as fast as sales, reflecting stronger execution across the business.
However, Avnet’s gross margin declined 68 bps year over year to 10.4%, primarily due to a greater mix of lower-margin Asia sales and memory price pass-throughs. Management noted that approximately half of sequential sales growth and one-quarter of year-over-year sales growth came from higher memory prices.
The company's largest Electronic Components (EC) segment expanded its operating margin to 3.5% from 3.2% in the previous quarter, driven by improving business conditions in Europe. Management expects EC operating margins to reach its 4% near-term target within the next fiscal year. Meanwhile, Farnell's operating margin improved to 5.2%, its sixth consecutive quarter of expansion, with management targeting a return to double-digit margins by the second half of 2027.
Looking ahead, rising book-to-bill ratios, improving lead times, stronger demand creation activity and continued SG&A discipline should support further operating margin expansion, even if gross margin remains constrained by product and geographic mix. Alongside this, AVT should also monitor how competitors are adapting to market dynamics and stay ahead of any new advancements.
How Competitors Fare Against Avnet
Avnet operates in a competitive technology distribution market where it competes with global component distributors as well as broader IT distributors, including Arrow Electronics (ARW - Free Report) and TD SYNNEX (SNX - Free Report) . However, Avnet benefits from the niche it has created for itself, which helps to protect its margins.
Arrow Electronics competes directly with Avnet in electronic component distribution, semiconductor supply, embedded computing and engineering services. Both Arrow Electronics and Avnet serve OEMs, industrial manufacturers, automotive suppliers, communications equipment vendors and data center customers.
Avnet comes into crossroads with TD SYNNEX in the broader AI infrastructure value chain. AVT plays its role much earlier in the technology value chain by supplying electronic components directly to equipment manufacturers, making the overlap minimal with TD SYNNEX. Given these dynamics, Avnet has little to worry right now.
AVT’s Price Performance, Valuation and Estimates
Avnet shares have soared 86.9% in the year-to-date period, outperforming the Zacks Electronics - Parts Distribution industry’s 60.2% growth.
Avnet YTD Performance Chart
Image Source: Zacks Investment Research
Despite this outperformance, AVT stock is trading at a price-to-sales multiple of 0.26X, which is below the P/S multiple of industry’s P/S multiple of 0.39X. The undervaluation is further substantiated by Zacks Value Score of B.
AVT Forward 12 Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for AVT’s fiscal 2026 earnings is pegged at $5.12, implying year-over-year growth of 49%. The estimate has remained unchanged for the past 60 days.
Image Source: Zacks Investment Research
AVT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.