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Myriad pressures should keep electronics maker Avnet (AVT) underperforming the general markets in the months ahead, according to Zacks senior technology analyst Ken Nagy, CFA. His most recent research report supplies the details:
Avnet's Q4 results came in above expectations and our estimates. Revenue of $4.24 billion was higher than our estimate of $4.20 billion and EPS [earnings per share] came in slightly ahead of our $0.80 estimate. Weak component sales in the quarter was largely offset by aggressive cost control and seasonal strength from the rapidly growing computing business.
However, weaker component sales, mainly in Europe, impacted gross margins negatively, and we expect this trend to continue in the upcoming quarter. Forward guidance is for flat revenue growth in Q1 and significantly lower EPS range of $0.65-$0.69, reflecting seasonal weakness in Electronics Marketing [EM] in Europe and North America.
In the absence of a catalyst in the near-term and concerns related to the high level of debt, we are maintaining our Sell rating. However, based on the recent pullback of the stock and current valuation, we are raising our target price to $32.
Also, Avnet has over $1 billion in long-term debt. The equity multiplier has been declining over the last 11 quarters, as equity has been increasing faster than the increase in total assets. This is a metric to watch, given the company's already large total debt position.
Read the analyst note on AVT
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