Shares of electronics distributors Arrow (NYSE:ARW) and Avnet (NYSE:AVT) are both sharply higher, after Citigroup’s Jim Suva raised his ratings on both stocks to Buy from Hold, citing much improved conditions in the electronic component supply chain.
Suva writes that recent results from Cisco (NASDAQ:CSCO), contract electronics manufacturers, distributors, “and the entire supply chain” show that supply chain inventory “is for the first time in over a year now shifting to a positive balance thereby setting up a favorable [second half] supply chain.”
Suva estimates that supply chain inventory was up 0.4% sequentially in the June quarter, compared to an expected 3.8% sequential sales increase in the September quarter for a combined 175 companies with trailing 12 months sales of more than $1 trillion.
Suva writes that he sees contract manufacturers’ inventory “turning to a catalyst from a headwind.” He also says recent large acquisitions for Arrow and Avnet are “progressing well.” And he says “each company has no need of credit markets for additional acquisitions as they have sufficient cash and cash flow.”
ARW vs. AVT 1-yr chart: