Flextronics has a lot of in-the-money options out.
I went over the share numbers way back in post 184, but since then I have better refined the numbers.
According to the prospectus issued last spring, there are 1,782,242 incentive options outstanding to buy shares at an average price of $18.53 per share. Add this to the 13,752,293 shares outstanding on June 30, and I get 15,534,535 shares.
When the company reports EPS, and reports a profit (instead of a loss), then the company is required to use in-the-money options to calculate the weighted shares outstanding. (In the case of a loss, this would decrease the loss per share number, so GAAP rules require the company to use only the actual outstanding shares.)A number of these incentive options still must have been out-of-the-money on June 30, so the Weighted Average Shares used in the JunQ EPS calculations was only 14,995,000 shares. But I suspect by today, all these incentive option are in the money. So today about 15,534,535 shares are out, and this should be the number used for the SepQ earnings report.
Next add the 1,900,000 new shares plus the likely 285,000 over-allotment, and I get 17,719,535 shares out by next week, and this should be the number used in the DecemberQ earnings report.
So I get a market cap of $833M. The $1B in revenues was projected by management for the year ending Mar98. A likely sequential revenue growth starting from the 1st Q ended in June is as follows:
Jun Q $197M Sep Q $230M Dec Q $270M Mar Q $300M Total=$997M
Assuming two more quarters of $300+M, I get forward 12 month revenues from today of 270+300+310+320= $1200M. So a forward looking PSR is 833/1200= 0.70.
Operating Margins was only 3.3% in last year's DecemberQ, then last Q rose to 4.25%. I think operating margin will continue to climb. If I use just 4.5% for the next 12 months, interest costs of $1M per Q (down from last Q's $2.3M due to cash raised), and a 15% tax rate, I get $2.42 a share for the next 12 months ending Sep98. The consensus estimate for next year ending March 99 is $2.38, so I think the analysts are still assuming lower margins and/or revenue growth.
If the margin increases to 5.0%, we could see $2.68, and if the margin increased to 6%, then we could see $3.26, although this much margin expansion in one year would be unusual. Remeber Solectron is around 7.0% BT margin and Jabil is 9%!! We seem to have seen some margin expansion in the sector this last year.
My expectation is that over the next year, the margin will increase to 5-6%, and a year from now, the company will be looking at $1500M for the next 12 months. The forward PE could be 20-25 easily, and the forward EPS will be about $3.85 to $4.20, so I get an upside target of around 80 to 100 for the stock in one year. This is would be a PSR of 0.95 to 1.18, which wouldn't be out of line for an ECM stock with 6% margins.
Revenue growth plus margin expansion should drive this stock. I think thats how Marks is able to sell 2.185M shares at 47.
Paul |
