Cyclical Stabilization And Asia Momentum Will Support Measured Upside Ahead

Key Takeaways

• Avnet's investments in digital platforms and e-commerce are boosting customer retention and positioning the company to gain market share in fast-growing tech sectors.
  
• Geographic and sector diversification, plus value-added services amid supply chain shifts, enhances earnings stability and margin potential as industry conditions improve.
  
• Margin pressure from regional sales shifts, weak EMEA demand, and rising costs threaten Avnet's profitability, balance sheet health, and ability to drive earnings growth.

Catalysts

Distributes electronic component technology.

• Recovery in global demand, led by robust 18% year-over-year growth in Asia and improving bookings/backlog across all regions, positions Avnet to benefit from accelerating digitalization, IoT adoption, and increased demand for electronic components; this should support top-line revenue growth as industry inventory normalization signals an inflection point.
  
• Expanded investment in digital infrastructure, proprietary customer platforms, and improved e-commerce capabilities-particularly at Farnell-strengthen customer experience and retention, enhancing Avnet's ability to capture market share in high-growth sectors (cloud/AI, industrial automation, EVs); this is expected to drive higher-margin recurring revenues and operating leverage.
  
• Increasing market complexity and supply chain challenges are driving OEMs and customers to rely more on technically adept, authorized distributors like Avnet for design and engineering value-add, which supports stable or improving net margins through premium services and stickier customer relationships.
  
• Ongoing geographic expansion, notably the double-digit sustained growth in Asia and the strategic focus on reigniting growth in EMEA, diversifies revenue sources and reduces regional concentration risk, creating greater earnings stability and upside potential as Western markets recover.
  
• With improving book-to-bill ratios, a stabilizing inventory environment, and a strong commitment to operational efficiency (cost control and optimized capital allocation), Avnet is set to translate industry tailwinds into higher earnings and cash flow, supporting future shareholder returns through buybacks/dividends and potential multiple expansion.

Avnet Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Avnet's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.1% today to 2.7% in 3 years time.
• Analysts expect earnings to reach $680.5 million (and earnings per share of $8.14) by about September 2028, up from $240.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.5x on those 2028 earnings, down from 18.5x today. This future PE is lower than the current PE for the US Electronic industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 4.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.96%, as per the Simply Wall St company report.

Avnet Future Earnings Per Share Growth

Risks

• The rapid growth of Asian sales as a share of overall revenue puts significant downward pressure on Avnet's blended gross margins, and given the structurally lower margin profile in Asia compared to EMEA and the Americas, this trend could result in sustained lower net margins and earnings if regional demand imbalances persist.
  
• Persistent demand weakness in EMEA, which experienced a 21% year-over-year sales decline (in constant currency) and only modest recovery signs, increases Avnet's risk of prolonged underperformance in a historically profitable region and contributes to operating margin volatility at the company level.
  
• Ongoing margin compression, reflected by a 99 basis point year-over-year decline in gross margin (to 10.6%), is attributable to both adverse product/customer mix and regional sales shifts, and may be exacerbated by further commoditization of Avnet's core distribution services, undermining long-term profitability.
  
• Elevated inventory levels-despite reductions-still require active management, tying up significant working capital and exposing Avnet to further risk of inventory writedowns if end-market demand fails to recover as anticipated, directly impacting future cash flows and balance sheet health.
  
• Increased operating expense headwinds are expected in fiscal 2026 due to reinstated merit pay and inflationary pressures, which could limit operating leverage and hinder earnings growth if revenue recovery is slower than forecasted, especially in cyclical or underperforming regions.

Valuation

• The analysts have a consensus price target of $52.75 for Avnet based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $43.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $25.5 billion, earnings will come to $680.5 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 10.0%.
• Given the current share price of $53.13, the analyst price target of $52.75 is 0.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.