Avnet, Inc. (AVT) recently announced it was merging in an all cash deal with Bell Microproducts as global growth returns to the technology sector. AVT trades at just 12.6x forward earnings.
Company Description
Avnet distributes electronic components and computer products to customers in 70 countries worldwide.
It also provides services such as supply-chain and design-chain services, logistics solutions, product assembly, device programming, computer system configuration and integration and technical seminars to allow its customers to operate efficiently.
Avnet to Buy Bell Microproducts Inc.
On Mar 29, Avnet announced it was acquiring Bell Microproducts Inc, a distributor of storage and computing technology, in an all cash merger for $7.00 per share. This assumes a transaction value of $594 million.
The transaction is expected to close in 60 to 120 days and will be immediately accretive to earnings, excluding integration and transaction costs.
Bell has 1,900 employees in 55 offices throughout the United States, Canada, Europe and Latin America.
Third Quarter Outlook
Given the merger, the company revised its third quarter outlook higher. Avnet now projects earnings per share between 60 and 66 cents per share compared to the previous range of 53 and 61 cents.
Sales of its Electronics Marketing segment are now expected in the range of $2.75 to $2.95 billion, up from $2.55 and $2.85 billion.
The Technology Solutions segment expects sales to range to now be between $1.7 billion to $1.85 billion, up from $1.55 billion to $1.85 billion.
Avnet is expected to report third quarter earnings on Apr 29.
Zacks Consensus Estimates Jump on the Merger News
Given the revised guidance, analysts have moved to raise estimates.
8 estimates jumped in the last 7 days for the third quarter as the Zacks Consensus Estimate rose to 63 cents from 58 cents, or right in the middle of the company’s revised guidance range.
9 estimates also moved higher for fiscal 2010 in the last week pushing up the Zacks Consensus to $2.42 from $2.32 per share.
This is earnings growth of 26.1% compared to fiscal 2009.
Expanding Into Smart Energy and Green Technology
The company also has a strategy to push into the smart energy and green technology sectors.
It announced on Apr 5 that its Avnet Electronics Marketing Americas business segment signed a distribution agreement with Jennic, a manufacturer of low-power wireless microcontrollers.
Under the agreement Avnet will distribute Jennic’s complete line throughout the Americas.
Avnet Surprised by 11.9% for the Second Quarter
On Jan 28, Avnet reported second quarter results that beat the Zacks Consensus by 7 cents per share. Earnings per share were 66 cents compared to the Zacks Consensus of 59 cents. It was the second straight earnings surprise in a row.
Sales jumped 13.2% to $4.8 billion. Sales grew by 10% if you exclude the impact foreign currency exchange rates.
Both segments saw growth in the quarter. The Electronics Marketing segment saw sales climb 11% to $2.5 billion. The Technology Solutions segment grew by 15.8% to $2.3 billion as all regions grew including a 40% jump in the Americas.
The company said in January that its growth in the quarter was further evidence that the global economy had begun its next growth cycle.
Value Fundamentals
Avnet is a Zacks #1 Rank (strong buy) stock. It has a price-to-book ratio of 1.5, which is well within the value parameters of under 3. It also has a solid 5-year average return on equity (ROE) of 11%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
