Keep on Loving Arrow Electronics, Going Long Into Super Bowl

| About: Arrow Electronics (ARW)

And though I know all about those men (stocks)

Still I don’t remember
‘Cause it was us baby, way before then
And we’re still together

And I meant, every word I said
When I said that I love you I meant
That I love you forever (
well at least another quarter)

And I’m gonna keep on lovin’ you REO Speedwagon

Arrow Electronics Inc. (NYSE:ARW) announced earnings yesterday with better than expected 4th quarter profits and sales but — more importantly for us — issued higher forecasts for the 1st quarter. Remember, it isn’t even “what have you done for me lately” in the stock market. It comes down to “what are you going to do for me next” that matters. The $1.29 per share (after restructuring costs, income taxes, prepayment of debt, and other charges) versus $0.64 a year ago confirms that growth which we anticipated when recommending ARW at $30.55 on November 4, 2010.

So, ARW is +35.25% since the post on November 4, 2010, and heading into Super Bowl weekend the question is: Should we take our profits and move to another position or go long into the Super Bowl and beyond?

We have to remove the emotion of being up 35% (which I just like saying) and decide if we didn’t own ARW before today would we want to buy it at $41.32? For those who already own it, we need to decide if we “meant, every word I said” and “love (it) forever.” Let’s start with our main interest, earnings. The eight analysts forecasting earnings expect $1.09 in the 1st quarter and $4.58 for the year. This gives us a forward P/E of 9.03 in an industry that is averaging 12.86, so this tells me that we are still getting value. The 5-year projected growth rate on ARW is 30.05% which tells us that we are getting nice growth at a reasonable price (i.e. GARP).

Just today, four firms — Citigroup ($39 to $54), Longbow ($46 to $49), Miller Tabalk ($37 to $49) and Credit Suisse ($32 to $41)—raised their price targets on ARW. Raymond James ($40 to $47) raised their price target on Monday ahead of the earnings, getting them an extra star in my book for having been willing to stick their necks out ahead of the earnings. Lastly, five gold stars go to USB ($40 to $42) who had the foresight to raise their target on January 19, 2011. The “huh” award goes to S&P equity research for cutting theirs on January 18, 2011, although in all fairness it was from a Strong Buy to a Buy.

The preponderance of evidence tells me that we would be going long ARW if we didn’t already have it in the virtual portfolio. We can buy a 30.5% growth stock for only 9 P/E which should provide our receiver plenty of room to get open on the fly pattern in the Super Bowl.

Recommended action:

Stay LONG or Go Long – Arrow Electronics, Inc.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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