Avnet, Inc. (AVT), a world-leading supplier of electronic components and computer products, recently declared the acquisition of Pepperweed Consulting. While we await further details on the agreement, this latest acquisition is likely to stimulate Avnet’s earnings stream moving ahead, and it is also expected to bolster the company to achieve its return on capital (ROC) target of 12.5% in two years’ time.
Pepperweed Consulting, an HP Software Elite Partner, offers IT enterprise management services and integration solutions to its channel associates and clients, especially in government agencies. It declared revenues of around $12 million in 2011.
With the acquisition, the company’s Avnet Technology Solutions’ (TS) operating unit in the Americas will be conflated with Pepperweed Consulting. Management expects that this acquisition will seamlessly strengthen Avnet’s software service portfolio in the future. In addition, the company through its enhanced services is likely to support its HP reseller partners for supplying improved and modified IT solutions to its clients in government, healthcare, energy, financial and retail markets.
Avnet has retained a keen eye for making profitable acquisitions for its market expansion and technological upgradation. Hence, we can be optimistic that such proactive advances in Avnet’s TS segment will help it successfully achieve its goal of obtaining revenues of $2.55 billion - $2.85 billion in the upcoming fourth quarter of fiscal 2012.
The company pertains to an industry, where ominous competition is prevalent. Hence, Avnet should stay cautious of big players, such as Arrow Electronics, Inc. (ARW), Richardson Electronics Ltd. (RELL) and Wesco Intl Inc. (WCC) in the industry.
The current Zacks Consensus Estimate for the fourth quarter of fiscal 2012 is $1.08, reflecting a year-over-year growth of (11.66%). Estimates for the fiscal year 2012 and 2013 are $4.16 and $4.46, representing annual growth of (3.81%) and 7.33%, respectively. We currently maintain a Neutral recommendation on Avnet. The stock carries a Zacks #3 Rank, translating into a short-term (1-3 months) Hold rating.
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