We continue to maintain our Neutral recommendation on Avnet, Inc. (AVT).
Earnings estimates for fiscal 2011 have moved higher, driven by better-than-expected results for the second quarter that beat our expectations by four cents.
Nine out of the twelve analysts covering the stock have increased their estimates in the last thirty days while two analysts moved in the opposite direction. Consequently, estimates for fiscal 2011 have increased by twelve cents in the last thirty days.
For 2012, eight out of the eleven analysts covering the stock have upped their estimates in the last thirty days while two analysts moved in the opposite direction.
Avnet recovered in fiscal 2010 after a disastrous 2009, driven by strong global demand. Sales soared 40% from the year-earlier quarter to $6.8 billion in the second quarter of fiscal 2011, benefiting from technology driven economic recovery and growth across all segments. Excluding the impact of acquisitions, sales grew 14% year over year.
Revenue is back to pre-recession levels while Asia continues to contribute the larger portion of the total. Asia was less impacted by the downturn and began its recovery phase before the western regions.
We believe that Avnet is well positioned to accelerate revenues due to its aggressive acquisition strategy, its leadership position in mature markets and the increasing market share in emerging countries. The company has been able to increase its scale of operations as a result of the acquisitions.
However, we remain concerned about margins. Thus, we prefer to wait on the sidelines for expansion of margins and realization of synergies from acquisitions.
Our Neutral recommendation is supported by a Zacks #3 Rank, which translates to a short-term rating of Hold.
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