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Avnet Acquires Genilogix

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Avnet, Inc. (AVT) recently declared the acquisition of Genilogix LLC. This was done with the clear intent of strengthening Avnet’s HP software solutions and Cloud services. This acquisition shall not only be immediately accretive to Avnet’s earnings but will also help it achieve its return on capital (ROC) target of 12.5%.

Genilogix is primarily engaged in providing various IT services to its clients for augmenting the safety, efficiency and quality of mission-critical applications. Genilogix is considered as a HP Software Enhanced Elite Partner, which offers application lifecycle management solutions to various enterprises. The company’s revenue was nearly $23 million in 2011.

Avnet expects the acquisition to broaden its footprint in the IT solutions market and help the company to meet the increasing customer demand through providing cost effective solutions. The company’s recently acquired Pepperweed Consulting along with Genilogix will be involved in augmenting Avnet’s IT service offerings in the field of healthcare and government. Post acquisition, Genilogix will conflate with Avnet Technology Solutions’ Americas business. 

The company’s continuous acquisitions are expected to be a good contributor to its revenue stream going forward. During fiscal 2012, the company completed acquisitions of eleven businesses with total annualized revenues of $900 million. These acquisitions are expected to bolster its performances quite comprehensively and augment its product base going forward.

Avnet’s domestic and foreign operations are subject to significant competitive pressures. It faces stiff competition from Arrow Electronics Inc. (ARW), which remains a fiercely formidable rival. Arrow’s recent acquisition of ALTIMATE Group, Global Link Technology and Redemtech can turn out to be highly profitable, thereby posing a serious threat to the future of Avnet. In addition, big players to keep an eye out for in this regard include Anixter International Inc. (AXE), and Richardson Electronics Ltd. (RELL).

The current Zacks Consensus Estimates for Avnet are 83 cents and $3.22 for the second quarter of fiscal 2013 and for fiscal 2013, respectively. The estimates represent a year-over-year growth of (27.7%) for the second quarter and (20.6%) for fiscal 2013. The company currently retains a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ rating. We also maintain a long-term ‘Underperform’ recommendation on the stock.

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