We recently upgraded our rating on Arrow Electronics, Inc. (ARW) to OUTPERFORM from NEUTRAL.
New York-based Arrow Electronics is one of the world’s largest distributors of electronic components and computing products. The company sources products from about 800 suppliers and distributes them to over 130,000 customers (original equipment manufacturers, contract manufactures and commercial customers).
Last month, Arrow upgraded its outlook for the fourth quarter of 2009. The company now expects revenues to come between $3.8 billion and $4.2 billion in the December quarter, up from the previous guidance of $3.65 billion to $4.25 billion. Management stated that the upgrade in guidance was driven by stronger than expected growth in the components business. However, sales in the last few weeks of December will determine sales of the computing solutions business.
Earnings per share (EPS) are now projected between $0.57 and $0.63, up from the earlier estimate of $0.44 – $0.56.
Although the company faced tough times in late 2008 – early 2009, performance has been improving steadily since then. Last month, Arrow reported weak results for the third quarter as profits plunged almost 83% on weak sales and restructuring costs. However, management stated that the year-over-year decline in sales has begun to moderate both in North America and Europe. Asia continues to depict strength.
The company has been solidifying relationships with customers, with the intention of maintaining its position in the more mature markets and picking up the business which is being transferred to the low-cost regions. While these regions typically generate lower gross margins, operating margins are at acceptable levels. Therefore, the strong growth in these regions is a big positive, and is likely to continue adding valuable operating profit.
We expect overall demand to improve going forward with the economy showing signs of revival. We think the stock is undervalued as of now.
Read the full analyst report on “ARW”
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