Electronic component distributor Arrow Electronics Inc. ARW is set to report first-quarter 2015 results on Apr 30. Last quarter, the company posted a positive earnings surprise of 3.3%. Moreover, it is worth noting that Arrow has outperformed the Zacks Consensus Estimate in all four trailing quarters with an average positive surprise of 2.93%.
Let's see how things are shaping up for this announcement.
Factors to Consider
Arrow’s strong distribution channels are being preferred by original equipment manufacturers, contract manufacturers and commercial customers for marketing their products. The company’s core strength in providing best-in-class services and easy-to-acquire technologies will act as growth catalysts.
Moreover, the company has secured a significant market share through its broad portfolio of products and services, and continued efforts to maximize consumer satisfaction. Additionally, incremental sales from the strategic acquisitions, such as Computerlinks, should boost Arrow’s top line in the first quarter.
It is worth noting that spending on electronic equipment is dependent on the overall IT spending. Per the U.S. research firm Gartner, overall IT spending is expected to grow 2.4% in 2015 which will mostly be driven by enterprise software and IT services. As a specialized distributor of these products and services, Arrow Electronics stands to benefit from the projected increase.
However, a significant portion of the company’s revenues comes from the sale of semiconductors, which is a cyclical industry characterized by changes in technology and manufacturing capacity and subject to significant market upturns and downturns. Moreover, uncertain economic conditions, high debt burden and competition from Avnet AVT and Ingram Micro are the concerns, going forward.
Earnings Whispers
Our proven model does not conclusively show that Arrow is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.
Zacks ESP: Earnings ESP for Arrow is -2.29%. This is because the Most Accurate estimate of $1.28 per share is lower than the Zacks Consensus Estimate of $1.31.
Zacks Rank: Arrow’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some other companies, which you may consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Skyworks Solutions Inc. SWKS, with an Earnings ESP of +0.97% and a Zacks Rank #2 (Buy).
Broadridge Financial Solutions Inc. BR, with an Earnings ESP of 3.85% and a Zacks Rank #3.
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