As the U.S. economy witnesses a steady recovery despite heightened geopolitical tensions and deepening supply chain disruptions, industrial production is regaining momentum. This should drive the demand for industrial electronics. Therefore, we think it could be wise to add under-the-radar industrial electronics stocks Arrow Electronics (ARW) and Avnet (AVT) to one’s watchlist. Let’s discuss.
The U.S. economy continues to recover despite geopolitical tensions generated by Russia’s invasion of Ukraine and deepening supply chain disruptions. The resumption of industrial activities is driving the demand for industrial electronics. In January, industrial production jumped 1.4%, surpassing the 0.5% estimates. Capacity utilization also saw its highest increase after March 2019, rising 77.6%.
Industrial electronics are known to play a vital role in improving the efficiency and productivity of various industries. It deals with power electronic switches, actuators, IEDs, meters, sensors, automation equipment, etc. As industrial production rises, the industrial electronics industry benefits. According to Precedence Research, the power electronics market is expected to grow at a 5.2% CAGR to $37.30 billion by 2030.
Arrow Electronics, Inc. (ARW)
ARW provides products, services, and solutions to industrial and commercial users of electronic components and enterprise computing solutions. The Centennial, Colo.-based company operates through the Global Components business and the Global Enterprise Computing Solutions (ECS) business.
On Feb. 10, 2022, ARW announced that it had signed an agreement with Finland-based Real-Time Location Systems specialist Quuppa, whose Intelligent Locating System tracks tags and devices within a few centimeters and with millisecond latency. ARW’s VP product management and supplier marketing EMEA, Matthias Hutter, said, “Location services are being adopted across many markets, and the addition of Quuppa’s portfolio gives our customers further choice and flexibility in their product designs.”
ARW’s net sales increased 6.6% year-over-year to $9.01 billion for the fourth quarter, ended Dec. 31, 2021. The company’s non-GAAP net income increased 55.9% year-over-year to $379 million. Also, its non-GAAP EPS came in at $5.37, representing a 69.4% increase year-over-year.
Analysts expect ARW’s EPS for the quarter ending March 31, 2022, to increase 60.2% year-over-year to $4.55. Its revenue for fiscal 2022 is expected to increase 4.9% year-over-year to $36.17 billion. And it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 11.6% in price to close the last trading session at $113.88.
ARW’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Avnet, Inc. (AVT)
AVT in Phoenix, Ariz., is a technology solution company that markets, sells, and distributes electronic components from manufacturers, including semiconductors, interconnect, passive and electromechanical parts, and other integrated and embedded components. The company’s primary operating groups include Electronic Components (EC) and Farnell.
On Feb. 22, 2022, AVT agreed with Device Authority to accelerate and scale IoT deployments worldwide. Under the agreement, AVT will integrate Device Authority’s KeyScaler platform into its cloud-based device management platform, IoTConnect. AVT’s VP of IoT Lou Lutostanski said, “By integrating device identity lifecycle management into Avnet’s IoTConnect solution, we’re enabling users to manage devices built on multiple different technologies and platforms through a single pane of glass.”
For its fiscal second quarter, ended Jan. 1, 2022, AVT’s sales increased 25.6% year-over-year to $5.86 billion. The company’s adjusted operating income increased 170.7% year-over-year to $215.46 million. And its adjusted EPS came in at $1.51, representing a 214.6% increase year-over-year.
For its fiscal year 2022, AVT’s EPS and revenue are expected to increase 110.7% and 17.1%, respectively, year-over-year to $5.71 and $22.87 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has declined 1.1% in price to close the last trading session at $38.54.
AVT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
Note that AVT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
ARW shares were unchanged in premarket trading Wednesday. Year-to-date, ARW has declined -15.19%, versus a -12.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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