Brean Moving To The Sidelines On Avnet As Enterprise Softness Digested

Brean Capital has downgraded Avnet, Inc.

to Hold from Buy as the company digests Enterprise Softness. The company, which distributes electronic components, still expects long-term operating margin expansion of 50 - 100bps to 4.0 - 4.5 percent. "We believe this will be driven by 30 – 50bps from growth in 1) embedded and converged systems, IoT and Cloud, 2) 30 – 50bps from enterprise effectiveness, and 3) 10 – 20 bps in volume / leverage," analyst Ananda Baruah wrote in a note. The analyst noted that weaker-than-expected Technology Solutions (TS) demand in legacy data center products led to the low end of TS sales expectations in all three regions. For its third quarter, the company's adjusted earnings of $1.01 per share topped Street view of $0.98. However, quarterly revenue of $6.17 billion fell short of $6.32 billion consensus estimate. For the fourth quarter, Avnet expects EPS of $0.95 to $1.05 on revenue of $5.95 billion to $6.55 billion. Analysts expect earnings of $1.11 a share on revenue of $6.53 billion. "Overall sales guidance represents 4% - 12% Y/Y decline in overall sales with 3% - 10% Y/Y decline in EM sales and 5% - 17% Y/Y decline in TS sales," Baruah highlighted. Shares of Avnet fell 2.15 percent to $41.00.