CLSA Ponders What Avnet Will Do With Cash From Tech Data Deal

Avnet, Inc. AVT announced that it will sell its Technology Solutions reselling business to Tech Data Corp TECD for $2.6 billion.

CLSA’s Louis Miscioscia maintained an Underperform rating on Avnet, with a price target of $43.

Including the earlier Premier Farnell acquisition, the analyst mentioned that the company’s pro forma EPS would decline 18 percent to $3.48, a greater decline than earlier anticipated.

Uses For The Cash

According to the CLSA report, potential uses of the cash from the sale of Technology Solutions segment could include “a) debt paydown, b) buyback, c) dividend increase, and d) more acquisitions.”

“We see the deal as encouraging as it lets the company focus on what it does best, but keep our U-PF rating as it’s too early to call a turnaround,” Miscioscia explained.

Following a tough period of competition in technology reselling, Avnet decided to sell its Technology Solutions segment, rather than making further investments to compete.

New Focus

“Our research suggested Avnet had difficulty transitioning to this new approach and had less integration offerings. All in, we view the sale as a positive as it allows Avnet to focus on its core and it received what we think is a fair price,” the analyst pointed out.

The company is now focused on the Electronics Marketing business and intends to become the world leader in semiconductor design and supply chain.

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