Seeking Alpha
Value, growth at reasonable price, contrarian, newsletter provider
Profile| Send Message|
( followers)  

Avnet (NYSE: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.

Source: Avnet Available at a Bargain Price