Technology solutions company Avnet, Inc. (AVT) in Phoenix, Ariz., markets, sells, and distributes electronic components. The company operates through two segments, Electronic Components, and Farnell.

AVT shares have gained 7.5% in price over the past year and 2.8% over the past month to close yesterday’s trading session at $40.25. Furthermore, the 12-month median price target of $46.00 indicates a 14.3% potential upside. The price targets range from a low of $37.00 to a high of $57.00.

Lately, the market has soured on tech stocks due to concerns surrounding anticipated interest rate hikes, but AVT has been outpacing the broader market. AVT’s shares have retreated 2.4% in price so far this year. In comparison, the tech-heavy NASDAQ is down 16.7% year-to-date.

Here’s what could shape AVT’s performance in the near term:

Strategic Partnerships

Earlier this month, AVT and Device Authority, a global leader in identity and access management (IAM) for the Internet of Things (IoT), announced a collaboration that aims to integrate Device Authority’s KeyScaler™ platform into its cloud-based device management platform, IoTConnect, to help customers worldwide manage and protect their connected device infrastructure. The initiative should enhance AVT’s capabilities in the growing IoT space and help serve customers better. Also, in November, AVT, and Assess-IoT, LLC formed a strategic partnership to accelerate and scale IoT deployments for customers worldwide. Assess-IoT offers a range of IoT consulting services designed to improve deployed success of an IoT system.

The company also teamed up with Digital Realty Trust, Inc. (DLR), the largest global provider of cloud- and carrier-neutral data centers, colocation, and interconnection solutions, to equip companies and application providers to develop, scale, and enhance their video broadcast product offerings. The collaboration aims to develop “try and buy” high-performance, cloud-based universal video streaming solutions. “Latency-sensitive video content transmission is exploding across vertical markets such as broadcasting, mixed media, telemedicine, and fintech. With our technology partners and tools, Avnet Integrated is enabling our customers to more effectively evaluate and deploy solutions globally,” said Alp Sezen, head of strategy at Avnet Integrated.

Stable Financials

For its fiscal second quarter, ended Dec. 31, 2021, AVT’s non-GAAP sales increased 25.6% year-over-year to $5.87 billion, topping analysts’ estimate by $278.23 million. Electronic components sales were $5.42 billion, reflecting an increase of 24.9% year-over-year, and Farnell sales climbed 35.3% year-over-year to $440.90 million. Its adjusted operating income stood at $215.50 million, up 170.7% from the prior-year quarter, while the adjusted operating income margin improved 197 basis points to 3.7%. The company’s adjusted EPS increased 214.6% year-over-year to $1.51, surpassing the $1.27 consensus estimate by 18.9%.

In addition, the company estimates revenues for its fiscal third quarter to be in the range of $5.40 – $5.80 billion, while its adjusted earnings for the quarter are expected in the range of $1.45 – $1.55 per share. “We expect to continue to benefit from the favorable demand environment as well as from our investments in e-commerce and in expanding customer relationships,” Avnet Chief Executive Officer Phil Gallagher stated.

Discounted Valuation

In terms of forward P/E, AVT is currently trading at 7.88x, which is 68.2% lower than the 24.82x industry average. Also, its 0.25 forward EV/Sales ratio is 93.2% lower than the 3.65 industry average, while its 0.18 forward Price/Sales multiple is 94.8% lower than the 3.41 industry average. Its 0.45x non-GAAP forward PEG is 69.1% lower than the industry average.

POWR Ratings Show Promise

AVT has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Growth. Its stable rise in financials in its last reported quarter justifies this grade.

AVT has a B grade for Value, consistent with its lower than industry valuation.

Among the 49 stocks in the Technology – Electronics industry, AVT is ranked #8.

Beyond what I have stated above, one can also view AVT’s grades for Quality, Sentiment, Momentum, and Stability here.

View the top-rated stocks in the Technology – Electronics industry here.

Note that AVT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Bottom Line

The company’s strategic collaborations and capability expansion plans should drive its growth in the near term. Furthermore, the company topped analysts’ expectations by significant margins in its most recent quarter. The Street expects AVT’s revenues to increase 17.1% year-over-year to $22.87 billion in its current fiscal year. Also, the company’s EPS is expected to grow 105.4% in the current quarter, 33% in the next quarter, and 110.7% in its current fiscal year. Given its solid growth prospects, I think it could be an ideal addition to one’s portfolio.

How Does Avnet, Inc. (AVT) Stack Up Against its Peers?

AVT has an overall POWR Rating of B. However, one could also check out these other stocks within the Technology – Electronics industry with A (Strong Buy) rating: Wayside Technology Group, Inc. (WSTG), Arrow Electronics, Inc. (ARW), and CTS Corporation (CTS).

AVT shares were unchanged in premarket trading Thursday. Year-to-date, AVT has declined -2.38%, versus a -13.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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