Raymond James: Macro Headwinds Ahead for Avnet

Avnet, Inc. AVT reported second-quarter results Thursday that were in-line with expectations, but its Q3 guidance reflected softness in Asia revenue.

Although the company's largest region is facing macro challenges, Avnet’s run rate EPS in the current quarter should be higher than $4, while cost optimization is only about one-third complete, according to Raymond James.

The Analyst

Analyst Adam Tindle maintains a Strong Buy rating on Avnet with an unchanged $52 price target.

The Thesis

The initial focus is likely to be on Avnet’s guidance, Tindle said in a Friday note.

The company is controlling what it can and has a long runway left in cost optimization, the analyst said. With Avnet’s shares trading around $40, the margin of safety seems compelling, he said. 

The midpoint of the March guidance implies a sequential decline in revenue of around 7 percent, which is significantly below seasonal norms of 5-percent growth, Tindle said. 

Raymond James cut its 2019 revenue and EPS estimates from $20.5 billion to $19.7 billion and from $4.21 to $4.20, respectively. The revenue and EPS estimates for 2020 have been lowered from $20 billion to $19.3 billion and from $4.46 to $4.40, respectively.

Avnet management repurchased about 5 million shares in Q2. The authorization, estimated at around 10 percent of the electronics company's market cap, presents “the right combination for value creation over time, and this narrative should ultimately trump near-term macro headwinds,” Tindle said. 

Price Action

Avnet shares were down 1.13 percent at $41.18 at the time of publication Friday. 

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Photo courtesy of Avnet.