On Apr 2, we upgraded electronic components and computer
) to Neutral based on a decent second quarter performance despite
macroeconomic uncertainty, weak PC demand and inventory
rebalancing, and synergies from recent acquisitions. Avnet
carries a Zacks Rank #3 (Hold).
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Why the Upgrade?
Avnet's second quarter 2013 earnings per share came in at $1.01,
surpassing the Zacks Consensus Estimate by 21.7%. Revenues were
roughly flat year over year at $6.70 billion but were much above
the Zacks Consensus Estimate of $6.25 billion. Over the past four
quarters, Avnet has delivered an average surprise of 6.4%.
Following the release of second quarter results, the Zacks
Consensus Estimate for 2013 went up 3.6% to $3.46 per share.
Moreover, the Zacks Consensus Estimate for 2014 also moved up
2.7% to $4.24 per share.
Reasons for the Positive Bias on the Company
Though guidance for the upcoming quarter was disappointing, we
see some positive factors that led to the upgrade.
Avnet agreed to acquire Hong Kong-based value-added distributor,
RTI Holdings Ltd. along with its three associate companies (RTI
Technology China Ltd, Eastele Technology China Ltd, and DSP
Solutions Ltd). Post closure of the acquisition, Avnet will
integrate the new division into its Electronics Marketing segment
as RTI's offerings will compliment the segment's flagships. With
RTI Holdings, Avnet will be able to boost its product portfolio
and extend its geographical reach in Asia (mainly in China).
Also, the tech distributor added California-based IT professional
services company, TSSLink Inc. in January, to strengthen its
Technology Solutions segment.
The acquisitions are expected to be accretive to earnings per
share as soon as they are wrapped up.
In February, Avnet announced to have secured a place in Fortune
magazine's 2013 "World's Most Admired Companies" list. The
magazine recognized Avnet as the leading Electronics Wholesaler
for the fifth consecutive time.
Apart from this, British semiconductor and software design
company, ARM Holdings plc and Texas Memory Systems Inc., a
) selected Avnet as their distribution partner.
Other Stocks to Consider
Besides Avnet, other stocks in the technology sector that are
currently performing well include
). Both these companies carry a Zacks Rank #1 (Strong Buy).