Arrow Electronics (ARW) takes a middleman approach to the tech and electronics component business. Company literature states Arrow sources products from more than 1,200 suppliers for resale to more than 100,000 OEM and contract manufacturers, as well as commercial customers.
In additional to the wholesale electronics component business, Arrow Electronics offers what the company calls enterprise computing solutions. This portion of the business sells custom and off-the-shelf server installations, including software and servicing. The supply business is cyclical in nature while the computing solutions provide the company with an opportunity for steady growth.
For the second quarter of 2011 Arrow Electronics reported net income of $1.33 per share on revenues of $5.54 billion. Both were up significantly from the 96 cents and $4.6 billion for the same quarter of 2010. Electronic component sales increased by 19 percent and made up 70 percent of the quarterly revenue. Computing solutions sales increased by 23 percent.
As a stock, ARW, exhibits above market volatility with a beta of 1.6. This means the stock is 60 percent more volatile than the S&P 500. Over the course of the recent 52 week period, the stock doubled then lost 40 percent of its value, ending up little higher than the year ago share price. ARW shares have been priced like a cyclical stock near the top of a cycle with the P/E ratio dropping into the single digit range around six.
Plenty of acquisitions
Arrow Electronics management is not averse to growth through acquisition. The company has made 15 acquisitions since the start of 2008, including two so far in 2011 with one in process. Many of the purchases are in other countries, increasing the global reach of the company.
Recently, Goldman Sachs analyst Craig Hettenbach reduced his rating on Arrow Electronics to neutral from buy and lowered his target price to $47. The ratings reduction came with a bunch of downgrades of companies in the same industry. It appears this analyst believes the economic cycle will soon turn against these suppliers to the tech industry. The company reports next on Oct. 27.
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