On Jun 13, 2014, we issued an updated research report on
Arrow Electronics Inc.
) following the company's mixed first-quarter 2014 results, wherein
the bottom line surpassed the Zacks Consensus Estimate while the
top line lagged the same.
Notably, both earnings and revenues improved on a year-over-year
basis driven by growth across its business segments and
geographies. Revenues from Global components and Global enterprise
computing solutions (ECS) increased 7.2% and 0.2%, respectively on
a year-over-year basis.
Arrow has been very active on the acquisition front. During 2013,
the company completed the acquisition of four companies in addition
to the Computerlinks acquisition. We believe that these
acquisitions are likely to enable Arrow to enter markets, diversify
and broaden its product portfolio and maintain its leading
position. This should also have a positive impact on Arrow's top
line, going forward.
Arrow's core strength of providing best-in-class services is
expected to bolster its growth in the future. Moreover, the company
has secured significant market share through its broad portfolio of
products and services and continued efforts to maximize consumer
satisfaction. We believe that its expertise in understanding market
dynamics and strong product portfolio will continue to support
Spending on electronic components and computer products is highly
dependent on overall IT spending. Per the U.S. research firm
Gartner, overall IT spending is expected to grow 3.1% in 2014. The
improvement in spending will mostly be driven by enterprise
software and IT services. We believe Arrow is well-positioned to
capitalize on the opportunity.
Apart from this, Arrow has returned cash through share repurchases.
On May 21, 2014, the company announced the buyback of an additional
$200 million worth of its common stock under a new share repurchase
program. During the first three months of fiscal 2014 (ending Mar
29, 2014), the company repurchased stocks worth $88.5 million.
These initiatives are expected to support the company's bottom line
However, on the downside, Arrow has a highly leveraged balance
sheet. The company exited the first quarter with cash and cash
equivalents of $258.3 million compared with $390.6 million in the
previous quarter. Long-term debt was $2.14 billion. Thus, a highly
leveraged balance sheet weakens the company's earnings growth
Going forward, uncertain economic conditions and competition from
) are concerns.
Currently, Arrow has a Zacks Rank #3 (Hold). A better-ranked stock
worth considering in the sector is
Micron Technology Inc.
), carrying a Zacks Rank #2 (Buy).
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