We reiterate our Neutral recommendation on
). A proactive stance on acquisitions and incipient buy-back
activities could only partially counteract effects of short-term
downsides, over-emphasis on foreign markets and ominous
Avnet has retained a keen eye out for making profitable
acquisitions for market proliferation and technological
advancements. Till date, in its fiscal 2012, the company has
successfully bought nine businesses with consolidated annualized
revenues of about $730 million.
The major acquisition of Nexicore Services LLC was completed on
April 4, 2012. Not long back, on March 26, 2012, the company also
announced its decision to acquire Ascendant Technology LLC., mainly
to expand its global solutions distribution model.
One aspect which has forever been impressive with Avnet is its
desire to return optimum value to its shareholders through buy
back. On August 10, 2011, Avnet launched a $500 million share
repurchase program under which it bought back 710,000 shares during
its third fiscal quarter of 2012. Fiscal fluctuations or
pressurized yields apart, the company never disappoints its
investors in this regard.
While its intent and advances towards meeting long-term targets are
much approbatory, fears linger in our minds with regard to the
company's disregard for fighting short-term downsides. Revenues
dropped pervasively across both segments and even though major cost
reduction strategies were able to lift margins to satisfactory
levels; this might not be possible to sustain in the upcoming
quarter if demand continues to deteriorate at a similar pace.
Avnet's offshore markets are raising mounting concerns incipiently
with time. It is quite ironic that with such a laudatory market
presence across geographic regions it is becoming an onus for Avnet
Firstly, the EMEA's fiscal downfall continues to mar performances
at every sector. Avnet is no exception here with its vast
operations across Europe. There is hardly any sign of recovery from
this region in the near time ahead.
Secondly, the company has been making advances at emerging
economies, Asia being the prime center of attention. Avnet should
take note of the fact that while this shall bolster cost reduction
strategies using cheap labor, this might also prevent Avnet from
achieving higher margins with its higher asset velocity
expectations from these regions and low-margin businesses.
Fierce competition prevails in the industry Avnet pertains to
including big players with proactive advances just like its own.
Companies to remain wary of at all times are
Anixter International Inc.
Richardson Electronics Ltd.
Wesco International Inc.
Hence, until the situation ameliorates and a brighter picture
appears on the cards, we consider it wise to maintain a sideline
stance on Avnet. In the short run, we have a Zacks #3 Rank on the
stock which translates into a short-term 'Hold' rating.
AVNET (AVT): Free Stock Analysis Report
ANIXTER INTL (AXE): Free Stock Analysis Report
RICHARDSON ELEC (RELL): Free Stock Analysis
WESCO INTL INC (WCC): Free Stock Analysis
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