Earnings will be higher than forecasts, offsetting dilution.
You asked:Isn't the secondary going to dilute earnings?
I discussed why I thought the consensus estimate of $3.07 for next year seemed too low in this post:
Message 6371128
Then in this post, the company disclosed to analysts, that although the secondary would be dilutive, the company still expected to beat the existing EPS forecasts:
Message 6559103
This secondary went really fast at a good price. I suspect the brokers who underwrote the secondary liked the prospectus forward looking info so much, that they had no trouble placing the shares with preferred customers. I am a bit surprised; I thought there would be some weakness in the share price before and after the secondary.
I don't have concrete numbers on the result of the secondary, but understand that Phillips (an existing shareholder since the Neutronics purchase) sold about a million shares of the total. So the company sold about 2.7M shares and raised about $200M in new cash. The new shares will be about 10% of the total shares out (I'm using a total of about 25.5M shares out in my current calcs). The cash raised should cut interest costs immediately, since Flextronics has over $60M in bank borrowings. The company says the net dilutive effect will be less than 2 cents a share per quarter.
Apparently, I'm going to have to raise my estimates of earnings, but think I'll wait to see just what's going on in the current quarter. Their business must be booming; doing even better than my optimistic forecasts. But lets work off my prior estimates.
If I'm right, and the company was set to earn $3.57 per share (pre-split and pre-secondary) in FY2000 starting April 1st, then this is still about $3.49 post dilution (my estimate is higher than current consensus). At 73, the stock trades about 21 times next FY diluted earnings, basically at a market discount of about 10-15%. But the forward growth rate should easily be 30%, versus 8-10% for the S&P500. This is why I'm in this sector heavily, and in this stock. Growth in earnings will eventually prove out.
If this quarter is a barn-burner, and we get some better numbers on the impact of the new customer programs, then we will need to revise my estimates.
Paul |
