ARROW ELECTRONICS, INC. (ARW) stock intrinsic value fair value estimate & owner earnings analysis

Arrow Electronics distributes electronic components and enterprise computing products. In 2025 about 70% of sales came from its components segment (roughly 72% of that is semiconductors) and about 30% from enterprise computing solutions, sold to manufacturers, contract assemblers and IT resellers in more than 85 countries. Margins are thin and results follow the semiconductor cycle. The company's own annual report describes a downturn that began in 2023 and lasted through 2024 and part of 2025, as customers worked off inventory built up during the 2021-22 shortage. How we measured earnings. We start from operating cash flow, remove the swings in receivables, inventory and payables, then deduct stock-based compensation and the part of capital spending needed just to maintain the business (capital spending is only about 0.4% of sales). We then add back the cash interest paid, so the result is the cash the business earns before its lenders are paid; debt is subtracted separately. In 2025 the receivables and payables lines each moved by more than $6 billion because Arrow acts as an intermediary in its supply-chain services and the two largely offset each other. The net working-capital effect was a $522 million drag, which the company attributes mainly to building inventory ahead of an expected recovery. That is why 2025 operating cash flow was only $64 million against $570 million of net income; we treated it as timing, not as lasting earning power. Cash earned before interest, in millions: 2018 $1,032; 2019 $747; 2020 $827; 2021 $1,377; 2022 $1,716; 2023 $1,191; 2024 $574; 2025 $632. We used 2018 through 2025 as the window because it holds one full cycle (the 2019-20 slowdown, the shortage-driven surge of 2021-22 and the 2024-25 trough) and starts after the U.S. corporate tax cut that took effect in 2018. The median is about $930 million a year. Including 2016-17 would lower it to about $790 million; we judged the later window a better description of today's larger business. Because the share count fell from about 92 million in 2016 to about 52 million by 2025 through buybacks, we work in total dollars and divide by today's 51.9 million diluted shares rather than using older per-share figures. A large non-cash charge in 2019 (a reported net loss of $200 million despite $858 million of operating cash flow) and amortization of acquired intangibles are added back as sunk acquisition cost, and we credit no growth to offset them. Growth. Cash earned before interest rose about 10% in 2025 ($632 million versus $574 million). Our base case assumes $930 million in its first year, a step back up to the cycle median rather than growth. The dated reason is the first half of 2026 (quarterly report filed August 6, 2026): sales of $19.5 billion versus $14.4 billion a year earlier (+35%), net income of $509 million versus $267 million, and owner earnings of roughly $575 million in six months, about $1.15 billion annualized before adding back interest. Two consecutive strong quarters support returning to the median, not going beyond it. After that we credit no growth. Sales were $29.7 billion in 2018 and $30.9 billion in 2025, so there is no multi-year record of expansion, and acquisitions have been irregular rather than steady small tuck-ins. Market recovery, share gains and the operating-expense efficiency plan were left out because none is locked in. Base case, about $257 per share. The business keeps earning about $930 million a year. The record shows that level being reached in most cycles, through two downturns, at a distributor that has operated since at least 1946. It is worth about $15.5 billion. It owes about $2.17 billion ($2.05 billion long-term plus $0.12 billion current at July 4, 2026); we treated the $245 million of cash as needed to run a global operation. That leaves about $13.3 billion for 51.9 million shares. Bear case, about $151 per share. Cash earned settles permanently at about $600 million, the level of the 2024 and 2025 trough ($574 million and $632 million), with no recovery. The business is worth about $10.0 billion, owes about $2.17 billion, and leaves about $7.8 billion. This case still covers its interest bill (about $163 million of cash interest in 2025) several times over. Maturities matter here: about $1.09 billion of borrowings fall due in 2027, mainly the $1.5 billion receivables securitization program ($970 million drawn at year-end 2025, maturing September 2027), and about $0.5 billion in 2028 (3.875% notes). The $2.0 billion revolving credit facility was undrawn at year-end 2025, runs to 2030, and the company reported compliance with its covenants. Arrow sold 10-year notes at 5.875% in 2024, so we assumed refinancing near 6% and made no adjustment for the cost of the debt (its fixed-rate notes carry 2.95% to 5.875% coupons, worth a few percent of the debt at most). Bull case, about $360 per share. Cash earned holds at about $1.25 billion a year, the level of 2023 ($1.19 billion) and close to the 2026 first-half pace. The business is worth about $20.8 billion, owes about $2.17 billion, and leaves about $18.7 billion. What would make this wrong. The 2021-22 surge was shortage-driven, so if the true normal level is nearer $600-750 million the base case is too high. The first-half 2026 surge could be a one-time restocking. Roughly 50% of 2025 sales were semiconductors, so a prolonged downturn hits both earnings and the debt cushion. Debt due in 2027-28 could be refinanced at higher rates. Change since our August 2026 analysis (base $115, bear $25, bull $185). The higher values do not come from new bad or good news about the business. We now measure earnings without working-capital swings, which had pushed 2022 and 2025 earnings negative, and we discount at a lower, uniform 6% rate rather than 9.5% to 12%. The first-half 2026 results support the median level we use. The margin-of-safety price of $150 is about 42% below the base case and roughly the bear-case value, reflecting a cyclical, thin-margin business with about $2.2 billion of debt.