Why Investors Should Retain Avnet (AVT) In Their Portfolio?

A successful portfolio manager is aware of the importance of having well-performing stocks in their portfolio. Indicators of a stock’s continued performance include a rise in share price and strong fundamentals.

One such stock that investors need to hold on to right now is Avnet, Inc. (NYSE:T) . The company has been taking major restructuring steps to streamline its business in the past few months. It currently deals in Electronics Marketing. Additionally, it is expanding its presence in the Internet of Things (IoT) space.

However, the company’s streamlining activities will take some time to get reflected in its bottom line and margins.

Influencing Factors in Detail

In fiscal 2017, Avnet sold its troubled Technology Solution business to Tech Data Corporation (NYSE:TDC) for $2.6 billion. The divestment of the Technology Solution division has allowed Avnet to focus on high growth areas such as marketing electronic components and related products in the supply chain.

Avnet has been trying to use its resources to make investments in embedded solutions, IoT and critical digital platforms, as well as expand its footprint in newer markets, for the last one year.

According to research firm IDC, per the Wall Street Journal, the IoT market could nearly triple in the coming years. In 2014, the global IoT market was worth $655.8 billion and is expected to reach $1.7 trillion by 2020.

Avnet recently announced the launch of a cloud-based IoT Platform and services via Microsoft’s (NYSE:T) Azure. In December 2017, the company announced a wide range IoT services for the entire lifecycle of related products. These enhanced services will be assisting consumers with designing to delivery of IoT products.

Additionally, the company has also entered into several partnerships, including the likes of AT&T (NYSE:T) , and carried out acquisitions such as that of Dragon Innovation, Premier Farnell and Hackster.io. to strengthen its foothold in the IoT space. We believe all these will help the company to make the most of the growth opportunity in the industry, thereby boosting its top-line.

It is believed that the acquisition of Premier Farnell has strengthened Avnet’s worldwide digital footprint. In our opinion, the acquisition strategically fits with the company’s policy of focusing on high-growth electronic component business.

However, the company is suffering from declining revenue contribution from North America that witnessed a 5.2% year-over-year drop in the first-quarter of fiscal 2018. The supplier channel and program changes also negatively impacted the company’s margins in the last reported quarter.

Additionally, a significant portion of Avnet’s revenues are generated from the sale of semiconductors, which is a cyclical industry, characterized by changes in technology and manufacturing capacity, and subject to significant market upturns and downturns. This is a concern. Intensifying competition from Arrow Electronics also remains a headwind.

Conclusion

We believe that the combination of the abovementioned positives and negatives coupled with a raised guidance for fiscal 2018 secure this Zacks Rank #3 (Hold) stock’s position in investors’ portfolio as of now.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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