Stifel Nicolaus Upgrading Rating On Arrow Electronics To Buy

In a report published by Stifel Nicolaus, Arrow Electronics ARW is being upgraded to Buy as Stifel expects solid fundamentals.

Stifel Nicolaus said that it is upgrading its investment rating on shares of Arrow Electronics to Buy from Hold and introducing a 12-month price target of $48. “We believe the market is underestimating the sustainability of the distributor's earnings power and its ability to continue to outgrow the market with its proven M&A strategy. We believe fundamentals in the electronic component space (roughly 70% of sales) are holding up better than previously expected, and we expect enterprise and data-center related IT spending, where Arrow has 30% exposure, to continue to grow in the mid single digits over the next couple of years. On the M&A front, Arrow has completed eight acquisitions in the last 15 months, adding $2bn in annual revenue and roughly $0.43 to $0.69 in immediate EPS accretion, and we expect to see additional deals this year. Although shares of ARW have risen roughly 10% YTD, vs. +2% for the Nasdaq, we note that forward consensus estimates on the company have increased nearly 20% during that time frame. We believe shares are attractive, trading at ~7.9x our new FY11 EPS estimate of $4.78, vs. its five-year historical average of 11x. Our 12-month price target of $48 is based on roughly 10x our FY11 (Dec) EPS estimate.”

Arrow Electronics closed yesterday at $37.99.