Stifel Nicolaus Upgrading Rating On Arrow Electronics To Buy

In a report published by Stifel Nicolaus, Arrow Electronics (NYSE: ARW) is being upgraded to Buy as Stifel expects solid fundamentals.

Stifel Nicolaus said that it is upgrading its investment rating on shares of Arrow Electronics to Buy from Hold and introducing a 12-month price target of $48. “We believe the market is underestimating the sustainability of the distributor's earnings power and its ability to continue to outgrow the market with its proven M&A strategy. We believe fundamentals in the electronic component space (roughly 70% of sales) are holding up better than previously expected, and we expect enterprise and data-center related IT spending, where Arrow has 30% exposure, to continue to grow in the mid single digits over the next couple of years. On the M&A front, Arrow has completed eight acquisitions in the last 15 months, adding $2bn in annual revenue and roughly $0.43 to $0.69 in immediate EPS accretion, and we expect to see additional deals this year. Although shares of ARW have risen roughly 10% YTD, vs. +2% for the Nasdaq, we note that forward consensus estimates on the company have increased nearly 20% during that time frame. We believe shares are attractive, trading at ~7.9x our new FY11 EPS estimate of $4.78, vs. its five-year historical average of 11x. Our 12-month price target of $48 is based on roughly 10x our FY11 (Dec) EPS estimate.”

Arrow Electronics closed yesterday at $37.99.