EMY is a bit player, of course, but I think this bodes well!
Custom Electronics Makers Riding Strong Wave
TORONTO (Reuters) - Strong third-quarter earnings at Celestica Inc. (Toronto:CLS.TO - news) (NYSE:CLS - news), followed by a slew of earnings upgrades, led the stocks of electronics components and systems makers to a buoyant opening on Thursday amid a general recovery for technology issues.
Investors were also encouraged by Solectron Corp.'s (NYSE:SLR - news) outsourcing agreement with Sony Corp. (6758.T), announced on Wednesday. Analysts said the deal for Solectron to make high-end consumer products for Sony could lead to more Japanese companies farming out manufacturing.
Celestica opened 10 percent higher and by late morning was up $5-5/8 at $77 on the New York Stock Exchange (news - web sites) and ahead C$8.90 at C$116.40 on the Toronto Stock Exchange. On Wednesday, the Canadian custom electronics manufacturer posted third-quarter earnings of 39 cents a share, beating analysts' forecasts, and a 186 percent rise in revenue.
Deutsche Banc Alex Brown analyst Chris Whitmore reiterated his ``strong buy'' on Celestica, based on ``exceptionally strong growth across all product categories.''
Celestica said revenues grew in the areas of wireless, optical and networking manufacturing from customers including Nokia (NOK1V.HE, Cisco Systems (NasdaqNM:CSCO - news) and Lucent Technologies (NYSE:LU - news)
Whitmore also raised his earnings expectations on Celestica to $1.32 a share in 2000 from $1.25, and in 2001 from $1.75 to $1.90 a share.
Other analysts also raised their earnings targets for Celestica by similar amounts, including those at National Bank Financial, UBS Warburg and Robertson Stephens.
In a morning note, Whitmore also said Solectron's outsourcing agreement with Sony could lead to $500 million in annual revenues, and the start of more outsourcing by Japanese firms.
Solectron was up $3 at $46-1/2 on the New York Stock Exchange, while Jabil Circuit Inc. (NYSE:JBL - news) rose $7-9/16 to $55-3/4. Flextronics (NasdaqNM:FLEX - news) was up $2-13/16 to $40-1/2. C-MAC Industries (Toronto:CMS.TO - news) (NYSE:EMS - news) rose $3-11/16 to $65-1/2 in New York and was up C$6.30 at C$100 in Toronto.
Custom electronics makers have been growing at a blistering pace over the past few years as telecoms equipment makers outsource manufacturing to improve their profit margins and speed up deliveries of new products.
Robertson Stephens said Celestica should be able to increase earnings per share by as much as 40 percent annually, based on a forecast 25 percent growth in electronics outsourcing as predicted by Technology Forecasters.
The global custom electronics manufacturing services industry is currently a $95 billion market.
Lately, investors have beaten down shares of personal computer and network equipment manufacturers because of slowing growth forecasts, but custom electronics manufacturers have proved immune.
``For the past few weeks people have been pretty cautious over end-market demand. But regardless of end-market demand the big driver to the growth of these companies is the outsourcing trend,'' said David Alonso, analyst at Robertson Stephens.
Companies like Lucent have experienced problems getting new products on the market, losing market share to companies including Nortel Networks (Toronto:NT.TO - news) (NYSE:NT - news), making it the type of company that will drive the outsourcing trend, said Alonso.
``It's not really a cost reduction, but getting to market first and capturing market share early. So it's strategic,'' Alonso added.
Robertson Stephens is also recommending SCI Systems Inc. (NYSE:SCI - news) on a relative valuation basis and on the fact they are moving in to higher margin telecoms manufacturing, as well as Sanmina Corp (NasdaqNM:SANM - news) for its capabilities in the area of printed circuit boards.
SCI rose $4 1/8 to $34 5/8 on the NYSE, while Sanmina Corp jumped $9 to $102 1/2 on Nasdaq in late morning trading on Nasdaq. |
