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On Thursday, BofA Securities adjusted its stance on Avnet (NASDAQ:AVT) shares, downgrading the company’s stock rating from Neutral to Underperform and reducing the price target to $48 from the previous $58. The revision reflects concerns over a challenging demand environment, particularly in Europe, and lingering excess inventory issues. According to InvestingPro data, 4 analysts have recently revised their earnings expectations downward for the upcoming period, despite the company maintaining a GOOD overall financial health score.
BofA Securities analysts cited a weak demand outlook for the coming quarters as a primary factor for the downgrade. They also noted that Avnet is likely to face difficulties in clearing excess inventory that remains in the channel. This process is expected to take several quarters, further impacting the company’s performance.
The analysts expressed concerns about the margins for Avnet’s core business, the Electronic Components (EC) segment, as well as its catalog business, Farnell. These margins are anticipated to remain under pressure due to a combination of unfavorable geographic mix, a weak macroeconomic environment, and competitive pricing pressures. InvestingPro data reveals that Avnet’s gross profit margin stands at 11.19%, confirming the margin pressure concerns.
In light of these challenges, BofA Securities has revised its estimates and price objective for Avnet. The firm’s valuation model shows Avnet trading at 9 times its calendar year 2025 EV/EBITDA, which is higher than the group average of about 8 times. Although Avnet’s valuation is not considered expensive, trading below its book value of $55, analysts see the stock as a relative underperformer compared to the rest of their coverage universe.
The new price objective of $48 is based on an unchanged multiple of 8 times the revised EV/calendar year 2025E EBITDA. This adjustment reflects BofA Securities’ outlook that Avnet’s revenues and margins are likely to be negatively impacted in the near term, which could affect the stock’s performance relative to its peers. InvestingPro’s Fair Value analysis suggests the stock is currently slightly undervalued, with additional metrics and insights available in the comprehensive Pro Research Report, which covers over 1,400 US stocks including Avnet.
In other recent news, Avnet, Inc. reported a mixed performance in their second quarter results. The electronic components distributor posted adjusted earnings per share of $0.87, narrowly missing analyst estimates by $0.01. Revenue, however, surpassed expectations, coming in at $5.7 billion, although this marked an 8.7% decline year over year. The company’s outlook for the third quarter fell short of Wall Street projections, forecasting earnings per share between $0.65 and $0.75 and revenue between $5.05-$5.35 billion. Avnet CEO Phil Gallagher noted that despite challenging market conditions, the company achieved sales and earnings within expectations. In terms of regional performance, sales declined across most regions, but Asia saw growth of 8.4% compared to the prior year. Lastly, Avnet generated over $300 million in operating cash flow and returned $80 million to shareholders through share repurchases and dividends during the quarter.
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