Arrow Electronics Stock: A High Margin Business With A Durable Moat (NYSE:ARW)

Date:


Circuit Board - Blue - Computer, Data, Technology, Artificial Intelligence

DKosig

The following segment was excerpted from this fund letter.


Arrow Electronics (NYSE:ARW)

Arrow Electronics (“ARW”) is the world’s largest authorized electronics components distributor (15% market share including larger shares in key markets) serving both electronics OEM customers and component suppliers. Most large component manufacturers

Arrow

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

102.6%

Capital Invested

393.9

484.1

285.4

666

228.8

183.2

449.4

163.9

124.3

60.9

78.8

877.3

2-yr sum

769.5

951.4

894.8

412

632.6

613.3

288.2

185.2

139.7

4-yr sum

1664.3

1363.4

1527.4

1025.3

920.8

798.5

427.9

CFO

663

622.8

718.6

711.2

748.7

750.9

986.4

722

848

1358.6

1651.2

900.3

2yr change

55.6

88.4

30.1

39.7

237.7

-28.9

-138.4

636.6

803.2

4yr change

85.7

128.1

267.8

10.8

99.3

607.7

664.8

5-yr avg

2-yr ROIIC

7.2%

9.3%

3.4%

9.6%

37.6%

-4.7%

-48.0%

343.7%

574.9%

180.7%

4-yr ROIIC

5.1%

9.4%

17.5%

1.1%

10.8%

76.1%

155.4%

52.2%

Equity

3987

4185

4159

4195

4466

4998

5376

4866

5149

5341

5611

RoE

6.7%

1.4%

10.4%

0.2%

13.8%

11.7%

9.1%

12.2%

14.1%

24.3%

28.0%

17.5%

Arrow Electronics

Sensitivity Table

Price

Upside

Current Adjusted Earnings *

$17.12

$557.72

0.052

7-year Expected EPS Growth Rate

15%

0.1%

$126.68

-0.6%

Historical EPS Growth Rate

14%

5.0%

$267.99

110.3%

Current AAA Bond Rate

5.2%

Growth Rate

7.5%

$340.42

167.1%

Implied Graham Mutiplier **

32.58

10.0%

$412.86

224.0%

Implied Value

$557.72

12.5%

$485.29

280.8%

Current Price

$127.44

15.0%

$557.72

337.6%

* Normalized earnings (2023 norm revenues * norm margin/shares outstanding)

* (2*Growth Rate + 8.5)

Arrow

EPS Growth

17.9%

2021

2022

2023

2024

2025

2026

2027

2028

2029

$ 127.44

3.76

5-yr fwd PE

7% growth PE

19.4%

9.43

Earnings/FCF Yield

22.5

Revs

$34,477

$37,124

$33,107

$29,700

$31,500

$33,000

$35,000

$37,000

$38,850

8%

-11%

-10%

6%

5%

7%

7%

5%

6% organic growth

2% Operation Lev

NI

$1,137

$1,465

$977

$620

$780

$891

$1,015

$1,130

$1,187

9% Repurchase

Future SP

$762.98

3.3%

3.9%

3.0%

2.1%

2.5%

2.7%

2.9%

3.1%

3.1%

17% Total EPS growth

IRR

43%

EPS

$16.70

$24.70

$13.52

$12.76

$17.64

$22.14

$27.72

$33.91

$39.13

48%

-45%

-6%

38%

26%

25%

22%

15%

History

EPS GR Rate

Buyback

5

19%

9% /year

68.1

59.3

53.4

48.6

44.2

40.2

36.6

33.3

30.3

###

10

14%

Price

Book Value

Tang Book Value

2024 Earnings

Inv Turns

EBITA Margin

RoE

RoTE

P/E

P/BV

Net Debt/EBITDA

EBITDA Int Coverage

Component Distribution

Arrow Electronics

127.44

107.89

67.42

11.85

5.51

4.9%

11.0%

17.6%

10.8

1.18

2.19

5.44

Avnet

48.53

51.94

43.41

5.75

4.10

4.3%

11.1%

13.2%

8.4

0.93

2.89

4.05

WPG

91.7

48.63

45.36

3.28

6.01

1.5%

6.7%

7.2%

28.0

1.89

9.38

1.77

WT Microelectronics

140.51

78.56

74.8

10.14

6.19

1.4%

12.9%

13.6%

13.9

1.79

1.09

3.75

Macnica

6993

3815

3700

693

4.49

6.4%

18.2%

18.7%

10.1

1.83

N/A

N/A

CECport

18.07

4.86

4.82

0.36

4.18

2.0%

7.4%

7.5%

50.2

3.72

13.50

4.90

Supreme Electronics

178.2

Neg

27.62

N/A

3.0%

N/A

6.5

N/A

0.99

4.90

IT Distribution

TD Synnex

116.31

93.3

34.7

12.04

6.78

2.8%

12.9%

34.7%

9.7

1.25

1.75

7.41

ScanSource

41.59

37.91

27.83

3.4

4.74

3.6%

9.0%

12.2%

12.2

1.10

3.14

7.15



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