Goldman Presses Sell Button On Avnet On Incremental Risk To Semi Cycle

Avnet, Inc. AVT, a distributor of electronic components and embedded solutions, is likely to be plagued by margin pressure and challenging semiconductor industry cycle, according to an analyst at Goldman Sachs.

The Analyst

Goldman's Mark Delaney downgraded Avnet from Neutral to Sell and reduced his price target from $39 to $34.

The Thesis

There's likely to be incremental risk to the semi cycle due to increased supply chain inventory, exiting Q1, Delaney said in a Wednesday note. The analyst also said component lead times have increased.

The analyst doesn't see a near-term decline in Avnet's growth, thanks to ballooning backlogs, but is worried because investors are increasingly focusing on the fundamentals in 2019.

As such, Goldman said its estimates for Avnet are above consensus expectations for the next few quarters, but is 12 percent below consensus for 2019.

"We also expect structural headwinds to margins from semi supplier consolidation to persist, and these could be compounded by a more challenging semi cycle that could materialize in late CY18/CY19 and more than offset company specific efforts to improve margins," the note said.

The Price Action

Reacting to the downgrade, the stock was down 3.2 percent to $39.11.

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