Avnet: Earnings Estimate Scorecard

Apr.13.10 | About: Avnet Inc (AVT)

Estimates for electronic components and computer products distributor, Avnet, Inc. (NYSE:AVT) have been on the rise following the upgrade in outlook for the third quarter of fiscal 2010 by the company.

Avnet now expects sales between $4.45 billion and $4.70 billion in the March quarter, up from the previous guidance of $4.10 billion and $4.70 billion. Sales from Electronics Marketing (EM) Group are projected around $2.75 billion – $2.85 billion compared to the prior range of $2.55 billion to $2.85 billion. Sales from Technology Solutions (NYSE:TS) are forecasted between $1.70 billion and $1.85 billion, compared to the prior range of $1.55 billion – $1.85 billion.

Due to the higher revenues and an improved business mix, earnings per share (NYSEARCA:EPS) are now forecasted around 60 – 66 cents, up from the previous guidance of 53 – 61 cents. The EPS guidance does not include any potential restructuring charges or integration charges related to acquisitions.

The upgrade in guidance was preceded by Avnet’s announcement to acquire Bell Microproducts Inc. (BELM) for $7.00 per share, amounting to $252 million. The total transaction value is $594 million after assuming a net debt of $342 million as of December 31, 2009.

Bell is a leading value-added distributor of storage and computing technology. The company has over 1900 employees and offers a broad suite of integration and support services to OEMs, VARs, system builders and end-users through 55 offices in the United States, Canada, Europe and Latin America.

Agreement: Estimate Revisions

As expected, nine out of the twelve analysts following the stock have raised their estimates in the last 30 days for 2010, following management’s guidance upgrade. There were no revisions in the opposite direction.

For 2011, eight out of the ten analysts covering the stock have raised their estimates in the last 30 days with no revisions in the opposite direction.

For the quarter (ending March), eight out of the eleven analysts covering the stock have raised their estimates with no revision in the opposite direction.

Magnitude: Consensus Estimate Trend


Estimates have shown a significant jump in the last 30 days following management’s positive outlook for the March quarter.

The current Zacks Consensus Estimate for 2010 is $2.42, up ten cents in the last 30 days and with an upside potential of 0.83%.

For 2011, the current Zacks Consensus Estimate is $2.73, up 14 cents in the last 30 days.

Avnet has consistently met or exceeded its guidance. In terms of earnings surprises, earnings exceeded the Zacks Consensus Estimate in the last quarter by 11.86%, and by 29.41% in the first quarter. On average, earnings have exceeded expectations by 9.25% in the past four quarters.

The current Zacks Consensus Estimate for the third quarter is 63 cents, up five cents in the last 30 days and in-line with management's guidance. The current figure has an upside potential of 1.59%.

Avnet Should Outperform

Bell recorded sales of approximately $3.0 billion in calendar 2009. Avnet expects that the acquisition will give an opportunity to develop business in storage and computing solutions along with expanding its presence in the fast-growing Latin America market.

Additionally, management stated that Bell’s position in datacenter products and embedded systems complements Avnet’s growth strategies and creates opportunities for cross-selling. Avnet currently focuses on embedded computing. With Bell’s leading position in hard disk drive distribution, Avnet will also have exposure to this product segment.

Meanwhile, Avnet also continues to expand its business in Asia, which is associated with lower ASPs and lower costs. Given the early signs of recovery, IT spending is expected to pick up.

Although the recovery would be slow and steady, orders are expected to return to normal levels by end of calendar 2010. We upgrade our recommendation for Avnet to Outperform from Neutral.