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Can Avnet Sustain Its Margin Expansion Momentum in FY27?
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Key Takeaways
Avnet posted 47.7% sales growth and 122% adjusted operating income growth in fiscal Q4.
Margin expansion continued as SG&A consumed 63.3% of gross profit, down from 70.2% in Q3.
Avnet expects fiscal Q1 sales of $9-$9.3 billion and adjusted EPS of $2.80-$2.90.
Avnet (AVT - Free Report) has entered fiscal 2027 with strong momentum, as broad-based demand, operating leverage and improving segment profitability point to further earnings growth. In the fourth quarter of fiscal 2026, AVT’s sales surged 47.7% year over year to a record $8.3 billion, while adjusted operating income jumped 122% to $318 million. Avnet’s adjusted operating margin expanded 129 basis points year over year and 73 basis points sequentially to 3.8%, marking the fourth consecutive quarter of margin expansion, with adjusted earnings per share rising 182% year over year to $2.28.
The improvement in operating profitability is notable because gross-margin expansion was limited. Avnet reported a 10.4% gross margin in the quarter, while SG&A was $548 million. More importantly, SG&A represented 63.3% of gross profit compared with 70.2% in the third quarter and 76% in the year-ago period. This indicates that a greater portion of incremental gross profit is flowing through to operating income as sales volumes recover.
Avnet’s sales environment also provides support for the outlook. AVT reported year-over-year growth across the Americas, EMEA and Asia. Electronic Components revenues increased 49% to $7.8 billion, while Farnell sales rose 29.4% to $500.1 million. The respective operating margins reached 4.1% and 9%, highlighting continued improvement across both businesses.
Demand indicators were encouraging at the end of fiscal 2026. According to Avnet's fourth-quarter presentation, all end markets grew at double-digit rates both year over year and sequentially, led by data center, networking, aerospace and defense, and industrial. Lead times were increasing across most product categories, while book-to-bill ratios remained above parity in all regions. Pricing also increased during the quarter, with the company attributing the increase largely to memory.
Avnet's initial fiscal 2027 outlook points to continued near-term growth. The company expects first-quarter sales of $9-$9.3 billion and adjusted diluted EPS of $2.80-$2.90. At the midpoint, the sales forecast implies approximately 10% sequential growth and assumes expansion across all Electronic Components regions and Farnell.
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 head-to-head 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 to a crossroads with TD SYNNEX in the broader AI infrastructure value chain. Avnet 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 about right now.
AVT’s Price Performance, Valuation and Estimates
Avnet shares have soared 92.1% in the year-to-date period, outperforming the Zacks Electronics - Parts Distribution industry’s 62.2% growth.
AVT YTD Performance Chart
Image Source: Zacks Investment Research
Despite this outperformance, AVT stock is trading at a price-to-sales multiple of 0.22X, which is below the industry’s P/S multiple of 0.36X. The undervaluation is further substantiated by the 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 2027 earnings is pegged at $10.45, implying year-over-year growth of 84%. The estimate has been revised upward in the past 30 days.
View the Zacks #1 Rank List
Image: Bigstock
Can Avnet Sustain Its Margin Expansion Momentum in FY27?
Key Takeaways
Avnet (AVT - Free Report) has entered fiscal 2027 with strong momentum, as broad-based demand, operating leverage and improving segment profitability point to further earnings growth. In the fourth quarter of fiscal 2026, AVT’s sales surged 47.7% year over year to a record $8.3 billion, while adjusted operating income jumped 122% to $318 million. Avnet’s adjusted operating margin expanded 129 basis points year over year and 73 basis points sequentially to 3.8%, marking the fourth consecutive quarter of margin expansion, with adjusted earnings per share rising 182% year over year to $2.28.
The improvement in operating profitability is notable because gross-margin expansion was limited. Avnet reported a 10.4% gross margin in the quarter, while SG&A was $548 million. More importantly, SG&A represented 63.3% of gross profit compared with 70.2% in the third quarter and 76% in the year-ago period. This indicates that a greater portion of incremental gross profit is flowing through to operating income as sales volumes recover.
Avnet’s sales environment also provides support for the outlook. AVT reported year-over-year growth across the Americas, EMEA and Asia. Electronic Components revenues increased 49% to $7.8 billion, while Farnell sales rose 29.4% to $500.1 million. The respective operating margins reached 4.1% and 9%, highlighting continued improvement across both businesses.
Demand indicators were encouraging at the end of fiscal 2026. According to Avnet's fourth-quarter presentation, all end markets grew at double-digit rates both year over year and sequentially, led by data center, networking, aerospace and defense, and industrial. Lead times were increasing across most product categories, while book-to-bill ratios remained above parity in all regions. Pricing also increased during the quarter, with the company attributing the increase largely to memory.
Avnet's initial fiscal 2027 outlook points to continued near-term growth. The company expects first-quarter sales of $9-$9.3 billion and adjusted diluted EPS of $2.80-$2.90. At the midpoint, the sales forecast implies approximately 10% sequential growth and assumes expansion across all Electronic Components regions and Farnell.
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 head-to-head 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 to a crossroads with TD SYNNEX in the broader AI infrastructure value chain. Avnet 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 about right now.
AVT’s Price Performance, Valuation and Estimates
Avnet shares have soared 92.1% in the year-to-date period, outperforming the Zacks Electronics - Parts Distribution industry’s 62.2% growth.
AVT YTD Performance Chart
Image Source: Zacks Investment Research
Despite this outperformance, AVT stock is trading at a price-to-sales multiple of 0.22X, which is below the industry’s P/S multiple of 0.36X. The undervaluation is further substantiated by the 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 2027 earnings is pegged at $10.45, implying year-over-year growth of 84%. The estimate has been revised upward in the past 30 days.
Image Source: Zacks Investment Research
AVT currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.