Arrow Electronics: Growth Should Inflect Positive In FY25

seekingalpha11-04

Arrow Electronics is nearing a growth inflection point, with 1Q25 expected to be the first quarter of positive y/y year revenue growth.ARW is entering the next growth cycle with a structurally ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nArrow Electronics: Growth Should Inflect Positive In FY25\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-04 23:58 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732732-arrow-electronics-stock-growth-should-inflect-positive-fy25><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Arrow Electronics is nearing a growth inflection point, with 1Q25 expected to be the first quarter of positive y/y year revenue growth.ARW is entering the next growth cycle with a structurally ...</p>\n\n<a href=\"https://seekingalpha.com/article/4732732-arrow-electronics-stock-growth-should-inflect-positive-fy25\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"ARW","symbol_name":"艾睿","start_time":0,"source_url":"https://seekingalpha.com/article/4732732-arrow-electronics-stock-growth-should-inflect-positive-fy25","article_id":"2481453990","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/672157033/image_672157033.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481453990","pubTimestamp":1730735917,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Arrow Electronics is nearing a growth inflection point, with 1Q25 expected to be the first quarter of positive y/y year revenue growth.ARW is entering the next growth cycle with a structurally improve","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"ARW":"艾睿","LU1839511570.USD":"WELLS FARGO GLOBAL FACTOR ENHANCED EQUITY \"I\" (USD) ACC","LU2087621335.USD":"ALLSPRING GLOBAL FACTOR ENHANCED EQUITY \"A\" (USD) ACC","BK4533":"AQR资本管理(全球第二大对冲基金)","BK4140":"技术产品经销商"},"translate_title":"Arrow Electronics：2025财年增长将转为正值","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ARW":0.9},"content_text":"Arrow Electronics is nearing a growth inflection point, with 1Q25 expected to be the first quarter of positive y/y year revenue growth.ARW is entering the next growth cycle with a structurally improved margin profile due to cost-cutting initiatives and leaner operations.Despite the recent share price decline, ARW's valuation remains attractive, with potential upside as it enters the growth cycle.   Jetta Productions Inc  Investment summary My previous investment thought on Arrow Electronics (NYSE:ARW) (published on 5th August) was a buy rating because I expected the business to start printing positive growth as it enters the growth cycle, which was getting increasingly visible. I reiterate a buy rating for ARW as I gained more confidence that 1Q25 will be the first quarter of positive revenue y/y growth. Using the consensus FY26 adj EPS estimate, the upside is still very attractive, in my view. 3Q24 results update Released on 31st October, ARW reported 3Q24 revenue of $6.8 billion, which was a 1% sequential decline and ~15% y/y decline. By segment, Global Components (\"GC\") sales came in at $4.95 billion, a 2% sequential decline and 21% y/y decline; Enterprise Computing Solutions (\"ECS\") sales came in at $1.88 billion, a 1% sequential growth and 7% y/y growth. Despite the rather flattish performance vs. last quarter, gross margin contracted by ~80bps sequentially to 11.5% (down 70bps y/y). As such, EBIT margin also took a hit of 60 bps sequentially, falling from 3.8% to 3.2%, and this led to ARW reporting operating EPS of $2.38 (down from $2.78 in 2Q24). Growth inflection point getting nearer   Redfox Capital Ideas This quarter reinforced my view that ARW is moving, reaching its growth inflection point. While q/q performance was down, investors should take a step back and look at the y/y growth trend, which has clearly turned the corner. As I have pointed out previously, if you compare the current y/y growth trend vs. the subprime period, ARW went on to report solid acceleration in y/y growth from the low of -~20% to >30% over the next few quarters.   Bloomberg Management guidance for 4Q24 has also reaffirmed this trend as they guided for 4Q24 revenue of $6.97 billion at the midpoint, which implies 2.1% sequential growth and y/y growth of -11.2% (another 360bps of y/y growth improvement). For investors that were hoping for a stronger guide, note that management has historically been conservative on their guide and have beaten the midpoint of most of the time by ~2.7%. If we assume a similar trend for 4Q24, 4Q24 revenue could come in at ~$7.3 billion, implying 4Q24 y/y growth to be ~-7%. Suppose it does this, and the rate of improvement, 1Q25, will be the quarter of positive y/y growth. Qualitatively, the fact that the ECS segment reported its third straight quarter of accelerating y/y growth (-11.3% in 4Q23; -7.9% in 1Q24; 1.6% in 2Q24; and 6.5% in 3Q24) is a very encouraging trend that, I believe, serves as a precedent to the GC segment and overall ARW business. Notably, the strength behind the ECS segment was driven by improvement in both North America (\"NA\") and EMEA, implying a broader recovery trend (NA and EMEA represent ~65% of ARW revenue). While the GC segment is still down 21% y/y in 3Q24 (still need more time to recover), management comments regarding performance in Asia were very encouraging. In particular, they noted China Automotive was an area of relative strength in 3Q24, which likely means ARW is winning market share as the industry's sales are down. They also noted that Asia delivered the best book-to-bill ratio in the quarter, implying a positive order trend. Margin outlook has gotten better   Redfox Capital Ideas My belief is that ARW is going to enter the next growth cycle with a structurally better margin profile. Unlike the past cycles, ARW now operates with a structurally leaner cost profile, mostly due to its shrewd execution in implementing its restructuring initiatives over the past 5 quarters, which have reduced expenses by around $200 million on an annualized basis. In the quarter, management laid out a new target to cut another $90-100 million in OPEX by the end of FY26. To give a sense of how impactful these cost savings are. Consider that ARW did $2.4 billion of gross profit in 2010, and $300 million of cost savings represents 12.5%, which means earnings growth in this upcoming cycle is going to be much stronger than the earnings growth seen in the post-subprime cycle.   Redfox Capital Ideas Lastly, just to touch on the working capital aspect of ARW, it continues to run a tight ship in that balance sheet inventory has been reduced by another 3% sequentially, with a total of $1.3 billion worth of inventory out of the balance sheet over the past 12 months. If you recall from my prior post, I used the inventory q/q trend to illustrate that ARW is near a recovery cycle, and with 3Q24 data, it reinforces my point. While we believe the pace of inventory declines will somewhat moderate in the near term (relative to the past year or so), we are encouraged by how the company has managed its working capital. Valuation Although the share price fell sharply after the results (which I think maybe due to the conservative guidance and share loss vs. Avnet (see below)), I think the upside is still attractive, assuming FY25 is the start of the growth cycle.   Bloomberg Historically, ARW has always pretty much always beaten consensus EPS estimates. Assuming the trend persists, ARW should generate adj. EPS of $19.93 in FY26 (or more if ARW beats this estimate). As ARW approaches FY26, the growth strength should start to taper to a more normalized growth rate; as such, I assumed ARW should trade at its mid-cycle multiple of 9x forward PE, which implies ARW stock to be worth ~$180 in FY25 (based on FY26 adj EPS estimate), or $163 in present value if we discount by 10%. Risk Although I am positive that ARW is entering a recovery cycle, ARW appears to be losing relative share to Avnet (ARW’s peer) in the GC segment (vs. Avnet’s Electronic Components segment) over the past few quarters (ARW segment revenue growth is slower). This could be due to ARW being tight on their inventory management. However, if this relative share loss persists or worsens even in a growth cycle, it may be a big red flag. Conclusion  My view for ARW is a buy rating. While the sequential decline in revenue might be a cause for concern, the truth is y/y growth trend reveals a clear uptick. The ECS segment's consistent acceleration in growth is particularly encouraging. I also like that ARW remains very focused on cutting costs, which should allow stronger earnings growth than past cycles. All in all, as ARW enters the growth cycle, I see attractive upside to the stock.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481453990"}