Over the past two years, the demand for electronics and personal and commercial computers has grown tremendously, thanks to the remote culture. With many companies shifting their work online, people worldwide have been upgrading their personal computers and laptops to be able to work from home. According to Gartner, the worldwide PC shipments increased 4.8% year-over-year in 2020 and 10% year-over-year in 2021.
As the semiconductor shortage eases with massive private and federal investments, the demand for electronics and computers is expected to continue to rise over the long term. Also, the growing adoption of smart home appliances and digitization in virtually every industry will likely fuel the industry’s growth over the long term. According to Precedence Research, the consumer electronics market size is projected to reach$1.13 trillion by 2030, growing at a 5.1% CAGR.
Given this backdrop, we think it could be wise to invest in popular electronics and computer distribution stocks Arrow Electronics, Inc. (ARW), Avnet, Inc. (AVT), PC Connection, Inc. (CNXN), ScanSource, Inc. (SCSC), and Wayside Technology Group, Inc. (WSTG).
Arrow Electronics, Inc. (ARW)
ARW in Centennial, Colo., manufactures and sells electronic components, semiconductors, and enterprise computing solutions to industrial and commercial users. It operates through two segments: Global Components; and Global Enterprise Computing Solutions. It operates across the Americas, Europe, Middle East, Africa, and Asia-Pacific regions.
On January 24, ARW entered a supply contract with Israel-based Appletec. Under the agreement, Appletec will produce a range of compact camera modules exclusively for ARW, thereby expanding the latter’s product portfolio.
ARW aims to reduce its Scope 1 and 2 emissions across Phase1 footprint by 10% this year and achieve ISO 14001 and ISO 50001 certifications. Such targets should attract ESG investors.
During the fourth quarter, ended Dec.31, 2021, ARW’s net sales increased 7% year-over-year to $9.02 billion. Its operating income rose 59.3% from the year-ago value to $511.93 million. The company’s net income increased 57.2% year-over-year to $371.21 million, while its non-GAAP EPS grew 69.4% from the prior-year quarter to $5.37.
The $4.55 consensus EPS estimate for its fiscal first quarter (ending March 31, 2022) represents a 60.1% improvement year-over-year. The $8.71 billion consensus revenue estimate for the current quarter indicates a 3.8% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 14.4% in price to close its last trading day at $123.24.
ARW’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ARW has a B grade for Growth and Value. Within the Technology – Electronics industry, it is ranked #1 of 46 stocks.
To see additional POWR Ratings for Momentum, Sentiment, Stability, and Quality for ARW, click here.
Avnet, Inc. (AVT)
AVT manufactures and sells electronic components such as semiconductors, interconnect, passive and electromechanical components, and other integrated and embedded components. The Phoenix, Ariz.-based concern conducts its operations through two segments: Electronic Components; and Farnell.
On March 9, AVT advanced to the Titanium tier of Dell Technologies Inc. (DELL) original equipment manufacturer (OEM) partner program due to its strong collaboration and rapid growth. This upgrade should fuel the company’s growth significantly in the near term.
In the second quarter, ended Jan. 1, 2022, AVT’s sales increased 25.6% year-over-year to $5.87 billion. Its gross profit increased 39.5% from its year-ago value to $713.04 million, while its non-GAAP operating income grew 170.7% year-over-year to $215.50 million. The company’s non-GAAP EPS came in at $1.51, representing a 214.6% year-over-year improvement.
For its fiscal third quarter, ending March 31, 2022, AVT’s EPS and revenue are expected to increase 101.9% and 15.7%, respectively, year-over-year to $1.49 and $5.69 billion. It surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 13.3% in price over the past six months to close the last trading session at $42.47.
AVT has an overall B rating, which translates to Buy in our proprietary rating system. It also has a B grade for Growth and Value. The stock is ranked #7 of 46 stocks in the Technology – Electronics industry.
Click here to see the other ratings of AVT for Quality, Sentiment, Momentum, and Stability.
PC Connection, Inc. (CNXN)
CNXN in Merrimack, N.H., provides various information technology (IT) solutions and offers services for designing, configuring, and implementing IT solutions. The company operates through three segments: Business Solutions; Enterprise Solutions; and Public Sector Solutions. It serves small- to medium-sized businesses (SMBs) and medium to large corporate accounts through telemarketing, advertisement, and marketing programs.
On Nov. 4, CNXN announced a special dividend payout of $1 per share. The company disbursed $26.20 million as special dividends to shareholders thanks to its strong balance sheet and cash flows.
CNXN’s net sales increased 18.4% year-over-year to $800.17 million in the fourth quarter, ended Dec. 31, 2021. The company’s net income increased 37.4% from its year-ago value to $22.39 million, while its gross profit grew 16.7% year-over-year to $127.04 million. CNXN’s EPS rose 37.1% from the prior-year quarter to $0.85.
Analysts expect CNXN’s revenues to increase 11.4% year-over-year to $709.3 million in its fiscal first quarter (ending March 31, 2022). Its EPS is expected to increase 55.1% to $0.61 in the current quarter. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of CNXN have gained 26.2% in price year-to-date, closing yesterday’s trading session at $54.42.
CNXN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. It is no surprise that CNXN has an A grade for Sentiment and a B grade for Growth, Stability, and Quality. In the Technology – Services industry, it is ranked #4 of 78 stocks.
In total, we rate CNXN on eight distinct levels. Beyond what we have stated above, we have also given CNXN grades for Momentum and Value.
ScanSource, Inc. (SCSC)
Using a channel sales model, SCSC in Greenville, S.C., is a distributor of technology products and solutions globally. It operates in the United States, Canada, Brazil, and the United Kingdom through Worldwide Barcode, Networking & Security; and Worldwide Communications & Services segments.
On February 2, SCSC was named in Fortune Magazine’s World’s Most Admired Companies list for the sixth consecutive year. This recognition underscores SCSC’s consistently strong performance within the industry.
In the second quarter, ended Dec.31, 2021, SCSC’s net sales increased 6.6% year-over-year to $864.35 million. Its non-GAAP net income increased 60.6% from its year-ago value to $26.45 million, while its operating income grew 83.9% year-over-year to $31.50 million. The company’s non-GAAP EPS came in at $1.02, representing a 56.9% year-over-year improvement.
Analysts expect SCSC’s EPS and revenue to increase 29.4% and 7.3%, respectively, year-over-year to $3.55 and $3.38 billion in its fiscal 2022 (ending June 30, 2022). It surpassed consensus EPS estimates in each of the trailing four quarters. SCSC stock has gained 15% in price over the past year.
The company has a B grade for Sentiment in our proprietary POWR Ratings system. Among the 78 stocks in the Technology – Services industry, it is ranked #22.
Click here to see the additional POWR Ratings for SCSC (Growth, Stability, Value, Quality, and Momentum).
Wayside Technology Group, Inc. (WSTG)
WSTG is a value-added information technology (IT) distribution and solutions company. It markets its products through its own website, local and online seminars, events, various social media platforms, emails, and printed materials. ASTG is headquartered in Eatontown, N.J.
On March 7, Climb Channel Solutions, a wholly-owned subsidiary of WSTG, partnered with Sonatype Nexus Platform to expand their resellers’ DevSecOps offerings. Dale Foster, CEO of Climb Channel Solutions, said, “Customers equipped with their Nexus products will be able to manage open-source security risks without compromising innovation and scale. We want to enable partners to take full advantage of the best that open source has to offer without the risk and with Sonatype we can deliver a solution that does just that.”
On January 11, WSTG’s subsidiary, Climb Channel Solutions, entered a partnership with IRONSCALES to strengthen its customers’ cybersecurity and protect them against all forms of phishing. This partnership should allow Climb Solutions to improve cyber security resilience for its growing customer base.
During its fiscal 2021 fourth quarter (ended Dec. 31, 2021), WSTG’s net sales increased 6% year-over-year to $75.51 million. Its gross profit rose 20% from its year-ago value to $12.58 million. Its net income grew 36% from the same period last year to $3.45 million, while its EPS came in at $0.78, representing a 34.5% increase year-over-year.
Analysts expect WSTG’s EPS to improve at a 22% CAGR over the next five years.
Shares of WSTG have risen 31.9% in price over the past year to close the last trading session at $33.23.
WSTG’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. It also has an A grade for Growth and a B grade for Value, Sentiment, and Quality. And it is ranked #1 of 48 stocks in the Technology – Electronics industry.
In addition to the POWR Ratings grades I have just highlighted, one can see the WSTG ratings for Momentum and Stability here.
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ARW shares were trading at $122.10 per share on Wednesday afternoon, down $1.14 (-0.93%). Year-to-date, ARW has declined -9.06%, versus a -3.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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