Flextronics is lagging.
Solectron and Jabil rallied over 30% off their lows after the earnings report. SCI, Sanmina, and Flexf have lagged, and only rallied 10-20% off their lows. The market probably wants to see and hear proof that these companies aren't getting caught up in the Asian mess, particularly a company like Flextronics with large operations in China. Maybe the stock will act better after the earnings release. I've added to my position this week by buying some in the money calls.
There is some uncertainty in the earnings report. This is the first full Q that they will see the full impact of the Ericsson purchase, since some of the new products they signed up to make for Ericsson were delayed in previous quarters. Marks last letter said that this quarter we will see more Ericsson revenues. Also this will be the first full quarter of operation for the new plants in San Jose, China, and Mexico. The purchase of 90% of Neutronics stock the third week in October in exchange for FLEXF stock, makes estimating the quarterly numbers harder as well. Finally, we know there will be a $4M one time charge related to the Neutronics deal, and perhaps other charges or one time start-up costs. Who knows for sure? Marks even said in one of his interviews about problems at the small Wales plant and the nChip purchase, so I wouldn't be surprised to possibly see one time charges related to these ventures. Remember the nChip operations have been spun off to Intarsia, their joint venture with Dow. (There was a news release today where Intarsia has announced a licensing sale to ChipScale.)
Given all these uncertainties, I think many are waiting for the report to get better visibility. IMO that creates the current buying opportunity. I think the revenue growth due to three new plants, Karlskrona hitting stride, and inclusion of 90% of Neutronics projected revenues of $50M, will push total revenues over $300M, and we should see a rally. Provided of course, Flextronics forward looking statements are good. This company should grow revenues over 50% next calendar year easily over the 97 calendar year, based just on what we already know about projected revenues from Karlskrona and Neutronics and baseline data on the expected contribution of the new plants. I don't think any other company in the sector can grow that fast, unless they have a major acquisition.
I really am not focused on bottom line earnings, I will look at top line growth and the margin before taxes, interest, and amortization of goodwill, and neglecting one time write-offs. If that margin is 6.2% or better with good top line growth, this stock will rally. Just like SLR and JBIL did.
Paul |
