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Actionable news in AVT: AVNET Inc,

Why Avnet Deserves Serious Consideration


AVT had a decent quarter. In terms of value creation, the company's performance is "satisfactory."

AVT's sustainable growth rate is impressive.

AVT is undervalued and its shares are attractively priced compared to investment alternatives within the industry.

Avnet Inc. (NYSE:AVT) along with its two operating segments, Electronics Marketing (E.M) and Technology Solutions (T.S), primarily distributes electronic components, storage products and information technology services. My thesis is that AVT has the potential to grow and the company may not be a bad bet at the current price.

In Q1 2016, AVT's revenues were driven up by strong performance from the company's divisions in the EMEA region. AVT also benefited from expense efficiencies resulting from the Avnet Advantage program which boosted the company's operating income. Furthermore, the growth in revenues seems to have trickled down to strengthen the company's bottom line.

To get a better insight into AVT's prospects, I want to look beyond the recent quarter results.

Value Creation

It's important to assess how much capital a company is using to generate its earnings or in other words the value a company is creating for its shareholders. This can be done by measuring the difference between Return on Invested Capital and Working Asset Cost of Capital (WACC).

I have calculated AVT's WACC under the following assumptions:

  1. I have set the risk free rate of return equal to 10-Year Treasury Constant Maturity Rate of 2.2%.
  2. I have used AVT's five-year average tax rate.
  3. Market risk premium refers to the difference between expected return of the market and the risk free rate of return. In my model I have set the required market premium in the following range:...