With share price appreciation around 120% since last August, Avnet (AVT) shares are currently considered a Sell by senior semiconductor industry analyst Ken Nagy, CFA. We excerpted these passages to determine the reasons behind that recommendation:
Avnet is one of the largest distributors of electronic components and computer products. March quarter revenue and EPS [earnings per share] fell short of consensus expectations. Forward guidance is for 5-10% increase in the June quarter, driven by the Access acquisition. Weak microprocessor sales and EMS [Electronics Manufacturing Services] demand continue to exert a negative impact on the Electronics Marketing (EM) Group and Technology Solutions (TS).
Besides the weakness in Asia, we remain concerned about the high level of debt. We are reiterating our Sell rating in view of various issues in the core business, the high level of debt and the rich valuation.
The core business looks weak, and all the growth seems to be coming from acquisitions. Management's expectations of $160 million in yearly synergies (in fiscal 2007) from the Memec acquisition could prove to be overly hopeful. The share price has skyrocketed on the news of the takeover, and the valuation appears rich.
Read the analyst report on AVT