EUR 850.00 For Business Accounts Only

Morningstar | Arrow Signs off 2018 with Solid Quarter, Guides to Growth in 2019; Maintaining $91 FVE

Arrow Electronics’ fourth-quarter results were solid, with revenue and adjusted earnings per share in line with management’s guidance and our forecast. Guidance and commentary for the upcoming quarter suggested solid growth to continue amid ongoing design activity. Management also provided details regarding its edge computing capabilities and the longer-term convergence between information technology, or IT, and operational technology, or OT, and described how its offerings were helping to bridge this gap. We believe the results on both top and bottom-lines support our thesis regarding Arrow Electronics’ market opportunity, its narrow-moat and its steady growth potential. We are maintaining our current fair value estimate of $91 and would recommend investors wait for a wider margin of safety before investing the value-added distributor.

Sales in the fourth quarter were in the middle of prior guidance at $7.9 billion. This represented a year-over-year increase of 5% but a sequential uptick of nearly 6%. Component sales increased annually by 6% but trended 2% lower sequentially to $5.26 billion, in line with management’s forecast. Unsurprisingly, Asia was the biggest culprit of the decline with sales dipping nearly 5% sequentially. Americas was similarly weak, declining 2% sequentially. However, both regions still grew on an annual basis at nearly 7% and 5% respectively while European sales increased by nearly 9% over the same period as Arrow continues to gain share in the market. While book/bill in Asia was below parity at the end of the quarter, leading to total book/bill of 0.95 in the fourth quarter, management detailed how design activity remained very strong in the region. The announced strong design activity helped to waylay some of our fears that sales for the region were heading for a prolonged slowdown and mirrored some of Arrow’s supplier’s comments in the past few weeks.

Enterprise computing solutions grew by 26% sequentially to $2.65 billion, in line with typical seasonality where there was strong demand for server, storage, software and infrastructure products. Adjusted margins for the firm were flat with the prior year at 4.5% while adjusted earnings per share totaled $2.57. Management’s expect revenue the first quarter to total $6.98 billion at the midpoint of guidance, which would represent 1.5% year over year. The growth is expected to be largely a function of continued component demand with the segment growing by 3% year over year. Enterprise computing solutions is expected to offset that growth by declining roughly 2%. Adjusted earnings per share to total $1.92 at the midpoint.