Sharp Increase In Insider Selling At Some EMS Companies
By STUART WEINBERG / WSJ / Sept 3, 2003
TORONTO (DOW JONES)--Insiders at five top electronics manufacturing services companies have sold more than $100 million worth of stock since October, with more than $34 million of the sales occurring in the last two weeks, according to Deutsche Bank Securities analyst Chris Whitmore.
During the same period, insiders at Flextronics International Ltd. (FLEX), Jabil Circuit Inc. (JBL), Plexus Corp. (PLXS), Sanmina-SCI Corp. (SANM) and Solectron Corp. (SLR) bought just $1 million worth of stock, Whitmore said in a research note published Tuesday. "We believe this spike in insider selling, and dearth of buying, speaks volumes to the dichotomy between insiders and investors' perceived value in EMS shares," Whitmore said.
Not everyone agrees. "I don't think it means a lot," Ingalls & Snyder analyst Alex Blanton told Dow Jones.
Insiders have a limited window when they can buy and sell shares, so when a spate of selling occurs it isn't surprising given the lack of flexibility, Blanton said. Furthermore, just because EMS stocks are up and some insiders took profits, it doesn't necessarily reflect the insiders' views of the company's prospects, he said. In fact, Flextronics recently held a bullish mid-quarter conference call in which it suggested possible upside to its fiscal second quarter, he said.
Officials from Flextronics weren't immediately available for comment.
Insiders Timed Market Well
Insider buying and selling has been a good, albeit not perfect, barometer of near-term stock performance, Whitmore said. For instance, in October when the outlook for tech spending was bleak, insider buying increased sharply, he said. The timing was prescient, as EMS shares increased 91% on average between Oct. 4 and Nov. 29, compared to a 30% increase for the Nasdaq composite index, he said.
Insiders sold shares in November and December, Whitmore said. Again, the timing was good, as EMS shares fell 32% from the November peak to the February trough, compared to a 13% decline for the Nasdaq, he said.
When investors bid up EMS shares in the spring before a tangible sign of a pick-up, insider selling increased, Whitmore said. This time, the insiders' timing was off, as EMS shares increased through the summer when it became evident that business conditions had moderately improved, he said.
In the last two weeks, insider selling has accelerated, as insiders see limited upside following the recent rally, Whitmore said. The majority of the selling was done by Jabil and Flextronics insiders, he said, but Solectron, Sanmina-SCI and Plexus insiders have also sold shares.
At Jabil , insiders, including company chairman William Morean and chief executive Timothy Main, sold roughly $18 million worth of stock in the past two weeks, Whitmore said.
Officals from Jabil weren't immediately available for comment.
At Flextronics, six insiders, including chief executive Michael Marks, chief financial officer Robert Dykes and chief operating officer Michael McNamara, sold shares valued at $14 million between Aug. 18-29, he said. Marks' sale of 500,000 shares on Aug. 21 left him with about 3 million Flextronics shares. Dykes' sale of 155,000 shares on Aug. 27 left him without any Flextronics shares, though he still holds 1.68 million options.
The increased levels of insider selling in the sector warrants caution, Whitmore said, noting that the sales occurred before the second half of the year, usually a time when business picks up.
Whitmore also said that EMS valuations are high. At more than 50 times calendar 2004 cash earnings per share and 15 times calendar 2004 operating EBITA, "we believe the EMS industry, which is plagued with excess capacity, aggressive pricing, an increasing competitive landscape, etc, is considerably overvalued," he said.
Ingalls & Snyder's Blanton begged to differ. He said he believes the outlook for the technology sector is improving, as evidenced by the 8.2% quarter-on-quarter rise in equipment and software spending in the second quarter. After a 2.5-year downturn, end markets have started to improve and stocks are going up, he said. |
