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Investing.com -- Fitch Ratings has affirmed Avnet Inc’s Long-Term Issuer Default Rating at ’BBB-’ but revised its outlook to negative from stable, citing concerns about elevated leverage that may persist until at least fiscal 2027.
The rating agency noted that Avnet’s EBITDA leverage reached 3.7x as of June 28, 2025, exceeding both Fitch’s negative threshold of 3.0x and Avnet’s own target of 2.5x. This high leverage stems from two years of cyclical pressure following a post-COVID semiconductor inventory buildup across the industry.
Avnet has amended its financial covenant to allow leverage above 4.0x through fiscal 2026, which Fitch interprets as a sign that credit metrics could remain under pressure despite early indicators of industry recovery such as stronger book-to-bill ratios and growing order backlogs.
The rating agency expressed concern about Avnet’s capital allocation decisions, pointing to substantial share repurchases over the past two fiscal years even as leverage approached and then surpassed management’s target. While Fitch believes management remains committed to investment grade metrics over time, it may apply financial policies flexibly in the short term.
As one of the largest global distributors of electronic components with revenues exceeding $22 billion in fiscal 2025, Avnet serves more than one million customers across 140 countries. Fitch views the company’s scale and global footprint as competitive advantages that create significant barriers to entry.
The rating agency expects Avnet’s revenue to grow at a low-to-mid single digits rate over the medium term, driven by increasing digitization, rising demand for AI components, and higher defense spending. The company is well-positioned in industrial, transportation, and military/aerospace sectors.
Despite these strengths, Avnet faces challenges from narrow margins due to intense competition and limited pricing power. The company’s EBITDA margins have dropped to 3.3% from historical levels above 4% during the current industry downturn.
Fitch projects Avnet’s leverage will remain above 3.0x until fiscal 2027, with EBITDA margin expected to improve to 3.5% in fiscal 2026 and exceed 4% thereafter as inventory normalizes and performance in Western regions strengthens.
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