Avnet Available at a Bargain Price

Avnet (AVT) is the second largest distributor of semiconductors, computers and peripherals in the world. [Ingram Micro is #1]. FY 2008 (ended June 2008) saw record sales of $17.95 billion and record EPS of $3.18 but the current FY is likely to see a drop to about $2.44 - $2.56 due to the worldwide economic slump.

Even so, the decline in Avnet's share price from $37.69 last December to today's $15.01 makes this look like a great time to get invested in this well run company. The shares now trade at just 6x the already reduced consensus estimates for this year and next. Typically AVT commands between 10 – 15 times normalized earnings.

Book value was $27.50/share as of June 30 and Avnet management has been using the worldwide slowdown to make complimentary acquisitions for its long-term growth while prices are favorable.

Its balance sheet is in good shape with long-term debt at just 22% of capitalization and very little principal due over the next five years. Here are its per share numbers since 2004 as reported by Value Line:

FY …..… Sales …... C/F …... B/V ….. EPS …... Avg. P/E

2004 …. 85.03 ….. 1.14 …. 16.21 … 0.60 …… 34.3x

2005 …. 91.64 ….. 1.90 …. 17.36 … 1.39 …… 13.3x

2006 …. 97.18 .…. 2.32 …. 19.30 … 1.90 …… 12.7x

2007 ….104.66 …. 3.12 …. 22.70 … 2.76 …… 10.5x

2008 ….119.35 …. 3.62 …. 27.50 … 3.18 …… 10.9x

2009 ….124.00 …. 2.50 …. 29.80 … 2.50 ……. 6.0x

FY 2009 data includes estimates for Q2 – Q4 (FY ends June 2009).

Even 10 times projected earnings for the current year would bring these shares back to $25 or + 66% from last week's quote. Is that a reasonable target? AVT shares hit peak prices of $27.00 - $44.70 in each calendar year from 2004 right through this year. Until the past few weeks the absolute lows in 2007 – 2008 were $25.50 and $23.20 respectively.

Two insiders seem to agree that the shares are cheap. There was a buy of 9237 shares @ $12.17 on November 21 for $112,414 and another insider buy on December 5 of 20,000 shares @ 13.95 for $279,000.

Value Line is using a 12.5 multiple and $4.00 in EPS in computing its 3 – 5 year projections to arrive at a $50 mid-point target price by 2011 – 2013. I think that is entirely possible leaving room for a tripling of Avnet's share price for patient investors.

Disclosure: Author is long AVT shares. Author is also long shares of industry group members IM and ARW.

Comments

[Tom Armistead:]

Thanks for a good idea, this and OKE today

2008 Dec 09 05:46 AM

[Paul Price:]

Value: Avnet, Inc. NYSE:$28.58 /share

By: Tracey Ryniec of ZACKS

November 24, 2009

Avnet, Inc. (AVT - Analyst Report) recently saw quarter over quarter growth as the global recession eased. The company is trading with a forward P/E of 13.2.

Company Description

Avnet distributes electronic components and computer products to customers in 70 countries worldwide. It also provides services such as supply-chain and design-chain services, logistics solutions, product assembly, device programming, computer system configuration and integration and technical seminars to allow its customers to operate efficiently.

Avnet Surprised By 29.41% in the Fiscal First Quarter

On Oct 29, Avnet reported better than expected fiscal first quarter 2010 results. It beat the Zacks Consensus Estimate by 10 cents. Earnings per share were 44 cents compared to the consensus of 34 cents. This was under the year ago period, however, which saw 67 cents.

Revenue fell 3.1% to $4.36 billion compared to the year ago period. The Electronics Marketing segment was the weaker segment with revenue falling 9.8% to $2.44 billion from the fiscal first quarter of 2009.

The Technology Solutions segment saw improvement as revenues rose 6.9% compared to last year.

Like every business, the company is still being impacted by the global recession but it saw growth rates rise sequentially which is improving confidence.

Second Quarter Guidance

Sales are expected to be between $4.1 billion and $4.7 billion in the second quarter with normal seasonality in the Technologies Segment and slightly better than normal in the Electronics Marketing segment.

Earnings per share are expected in the range of 52 cents to 60 cents per share assuming the average Euro to U.S. Dollar currency rate is $1.48 to 1.00 euro.

Zacks Consensus Estimates Rise

In the last month, analysts have raised both the second quarter and fiscal 2010 estimates. The second quarter Zacks Consensus Estimate jumped 6 cents to 56 cents.

The 2010 Zacks Consensus rose 13.7% to $2.08 from $1.83 with 10 out of the 11 covering analysts raising during the last 30 days.

Value Fundamentals

Avnet is a Zacks #1 Rank (strong buy) stock. It is trading with a price-to-book of 1.43. The company has a solid 5-year return on equity (ROE) of 10.82%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Nov 24 10:52 AM