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On Friday, Arrow Electronics (NYSE:ARW), currently trading at $107.21 and with a market capitalization of $5.59 billion, experienced a downgrade in its stock rating by BofA Securities from Neutral to Underperform, accompanied by a significant reduction in the price target to $99 from the previous $133. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, despite trading at a modest P/E ratio of 14.45. The decision came after Arrow reported a strong fourth quarter for fiscal 2024, with revenues and earnings per share (EPS) surpassing both BofA’s and the Street’s expectations. However, the forecast for the first quarter of fiscal 2025 was notably lower than anticipated, with projected revenues and EPS falling short of prior estimates.
The decline in revenue and margins for the upcoming quarter is partly attributed to seasonal trends in the Enterprise Computing Solutions (ECS) segment, which are more pronounced this year due to an unexpectedly robust fourth quarter. Additionally, the Components segment is facing margin pressures, particularly in Europe, which is Arrow’s highest margin region, and due to weakness in specific end markets. InvestingPro data reveals a challenging gross profit margin of 11.79%, supporting these concerns. For deeper insights into Arrow’s financial health and 12 additional ProTips, consider exploring InvestingPro’s comprehensive analysis.
In light of these challenges, BofA has adjusted its earnings estimate for calendar year 2025 significantly downwards, from $13.65 to $10.25. InvestingPro confirms that two analysts have recently revised their earnings estimates downward for the upcoming period. While Arrow’s management has observed some positive indicators, such as an improving book-to-bill ratio with two out of three operating regions ending the fourth quarter near parity, and a gradual reduction of excess inventory in the channel, BofA anticipates several weak quarters ahead for Arrow. The stock’s impressive free cash flow yield of 19% suggests potential resilience despite these headwinds.
The new price objective of $99 is based on a 10x multiple of the revised estimated EPS for calendar year 2025, which remains unchanged from the valuation method applied to the prior estimate. BofA anticipates that Arrow Electronics will underperform relative to other companies in its coverage due to the near-term impacts on revenues and margins.
In other recent news, Arrow Electronics Inc. reported robust fourth-quarter results for 2024, outperforming market projections. The company’s non-GAAP earnings per share (EPS) landed at $2.97, surpassing the anticipated $2.64. Additionally, Arrow Electronics posted revenues of $7.28 billion, exceeding the forecasted $7.01 billion. Despite these strong results, consolidated sales saw a 7% year-over-year decrease, underscoring ongoing industry challenges. The company’s strategic focus on cost reduction and investments in cloud and AI solutions played a significant role in its performance. Arrow Electronics also expressed cautious optimism for 2025, anticipating a modest recovery as inventory levels decline. The company’s Q1 2025 sales guidance ranges between $5.98 billion and $6.58 billion, with an expected EPS between $1.30 and $1.50. These recent developments highlight Arrow Electronics’ resilience and strategic approach amid industry challenges.
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