BofA Securities raises Avnet stock price target to $50 on strong revenue

Avnet (AVT) reported strong Q4 revenue of $5.6 billion and EPS of $0.81, both exceeding analyst expectations, and issued Q1 FY26 revenue guidance above consensus. However, the company projected Q1 EPS below Street estimates, and gross margins continued to face pressure from a higher mix of lower-margin Asia sales. Despite BofA Securities raising its price target to $50 from $48, the firm maintained an Underperform rating due to these persistent margin challenges and ongoing channel inventory correction, leading to a pre-market stock decline despite the positive earnings surprise.

Analysis

Avnet (AVT) reported a mixed quarter, characterized by strong top-line performance offset by significant profitability headwinds and cautious forward guidance. The company surpassed fourth-quarter analyst expectations with revenue of $5.6 billion and an EPS of $0.81, representing a 9.46% earnings surprise. However, gross margin came in at 10.6%, missing BofA's 11.0% estimate and declining approximately 100 basis points year-over-year, a weakness attributed to a higher mix of lower-margin sales in Asia. This margin pressure was further evidenced by a 50 basis point quarter-over-quarter decrease and a 21% year-over-year sales decline in the EMEA region. Looking ahead, Avnet's guidance presents a similar dichotomy: first-quarter revenue is projected at $5.7 billion, above the $5.5 billion consensus, but the EPS forecast of $0.80 is substantially below the Street's $0.89 expectation. This outlook prompted BofA Securities to reiterate its Underperform rating, despite raising its price target to $50.00, citing the persistent margin compression, ongoing channel inventory correction, and weak macro conditions as key concerns that overshadow positive developments in book-to-bill ratios and backlog.

Key Decisions for Investors

• Investors should scrutinize future gross margin performance, as the current pressure from sales mix and inventory destocking is the primary factor negating Avnet's top-line revenue strength.
• The significant disconnect between the strong Q1 revenue guidance and the weak EPS forecast suggests profitability will remain the key challenge, likely capping near-term upside potential for the stock.
• Given the reaffirmed Underperform rating from a key analyst and the market's negative pre-market reaction to the earnings report, a cautious or underweight stance is warranted until there are clear signs of margin stabilization.