Avnet's Revenue Recovery, Margin Improvement Trigger Bank Of America Upgrade

Avnet, Inc. AVT "delivered on all fronts" in its fourth-quarter report Wednesday, according to Bank of America Merrill Lynch.

The Analyst

Bank of America's Param Singh upgraded Avnet from Neutral to Buy with a price target lifted from $44 to $55.

The Thesis

Avnet earned 99 cents per share in the fiscal fourth quarter, which was in-line with expectations; if adjusted for foreign exchange-related expenses, the company would have reported an earnings beat at $1.04 per share, Singh said in the upgrade note.

The operating margin of 3.7 percent was six basis points better than expected, and the company is likely to sustain a 4-percent or more operating margin rate in the first half of 2019, the analyst said. 

Avnet's report showed a revenue recovery after a loss of vendors last year that impacted its topline performance, Singh said. The company said it won back Microsemi as a vendor for its global line card and is taking full advantage of the strength in the overall semiconductor market and some passive shortage that is likely to play out throughout part of 2019, according to BofA. 

Avnet deserves more credit for showing a path toward achieving its longer-term 4.5-5-percent margin target and EPS of $7 or more, Singh said. A bullish stance is justified, and the stock could see incremental upside above $55 per share if operating margin initiatives lift margins above 4.5 percent within two years, the analyst said. 

Price Action

Avnet shares were down 0.58 percent at $46.14 at the time of publication Friday.

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