Flextronics (FLEX) 37 15/16 +2 13/16: The EMS sector is rallying today after getting a shot in the arm from Plexus (PLXS) and Flextronics, both of which issued positive reports after market close yesterday. Earlier this week, in a Story Stock on Jabil Circuit (JBL), we wrote that the EMS stocks are looking attractive again. FLEX and PLXS reaffirmed this view last night when they both posted stronger-than-expected results and PLXS issued positive guidance for FY01. The three major end markets served by the EMS companies -- PCs, networking and telecom equipment -- have seen equity valuations get killed as companies struggled with an unexpected fall-off in demand. As the economy slows, inventory gluts follow demand slowdowns and companies get stuck with inventory backlogs that must be cleared, usually through discounting, which pressures margins and net income. These times are great for finding deals as a consumer, but lousy for investors as earnings warnings and shortfalls send stock prices spiraling downward. In order to reverse the losses, many companies will try to lighten their exposure to manufacturing execution and inventory risk. The best way to do this is to sell manufacturing capacity and increase outsourcing. We've seen those types of deals increase recently (MONI/JBL, Siemens/FLEX, Ericsson/FLEX, SCI/NT, etc.) which illustrates the shift toward more outsourced manufacturing. FLEX beat consensus revenue estimates by $85 mln in Q3 (Dec), and beat the bottom line consensus EPS estimate by a penny -- outstanding results given the environment. While the company admitted to less visibility in its current quarter, new business wins and increasing market share should help FLEX realize forecasts (FLEX will give a mid-Feb quarterly update). The short-term pain in the end-user markets that the EMS companies manufacture for will be a long-term positive. Valuations are low by historical standards, and the EMS group is poised for long-term expansion. The larger companies in the group are especially attractive, and FLEX remains one of our sector favorites. - Matt Gould, Briefing.com
From briefing.com
I look at many only 20% off its 52wkHI and see valaution high historically. Still getting my feet wet in the sector.
Jack |
