A leading integrated manufacturing solutions provider Sanmina Corporation (SANM), in San Jose, Calif., manufactures some of the world's most advanced and innovative electronic and optical products and serves the rapidly growing segments of the global Electronics Manufacturing Services (EMS) industry.
The company’s shares have gained 9% in price over the past year. In addition, the stock jumped nearly 4.7% in pre-market trading on February 1 after the company reported better than expected first-quarter earnings results and issued a positive outlook for the current quarter.
Even as the supply chain crisis continues, SANM expects strong demand across its business segments. It expects revenue of $1.7 billion - $1.8 billion and non-GAAP EPS between $0.95 and $1.05 in the second quarter of its fiscal year 2022.
Here is what could shape SANM's performance in the near term:
Positive Developments
Last September, SANM began strengthening its vast optical, radio frequency (RF), and microelectronics (microE) design and production capabilities to capitalize on increased demand for highly integrated technological solutions. The division has been established under a new brand name, Advanced Micro Systems Technologies (AMST). It draws on more than 15 years of expertise in offering mixed technology design and assembly services and best-in-class manufacturing solutions.
Robust Financials
During its first quarter, ended Jan. 01, 2021, SANM's net sales increased marginally year-over-year to $1.76 billion. Its non-GAAP operating income increased 1.3% year-over-year to $88.36 million. Its non-GAAP net income grew 4.3% from its year-ago value to $71.27 million, while its non-GAAP EPS grew 5.9% from the prior-year quarter to $1.08.
Impressive Growth Prospects
The Street expects SANM's revenues and EPS to rise 5% and 8.6%, respectively, year-over-year to $7.09 billion and $4.31 in fiscal 2022. In addition, SANM's EPS is expected to rise 8.4% from its year-ago value to $4.67. Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in three of the trailing four quarters.
Discounted Valuation
In terms of forward Non-GAAP P/E, the stock is currently trading at 8.85x, which is 58.3% lower than the 21.24x industry average. Also, its 0.32x forward EV/Sales is 91.4% lower than the 3.69x industry average. Furthermore, SANM's 0.34x forward Price/Sales is 90.8% lower than the 3.71x industry average.
Consensus Rating and Price Target Indicate Potential Upside
Of the three Wall Street analysts that rated SANM, two rated it Buy. The 12-month median price target of $48.33 indicates a 25.9% potential upside. The price targets range from a low of $38.00 to a high of $61.00.
POWR Ratings Reflect Solid Prospects
SANM has an overall A grade, which equates to a Strong Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SANM has a B grade for Quality, Growth, and Value. SANM's solid earnings and revenue growth potential is consistent with its Quality and Growth grade. In addition, the company's lower-than-industry multiples are in sync with the Value grade.
Among 81 stocks in the D-rated Technology – Services industry, SANM is ranked #1.
Beyond what I stated above, we have graded SANM for Sentiment, Stability, and Momentum. Get all SANM ratings here.
Bottom Line
SANM exhibited robust financial performance in its last reported quarter on the back of strong demand for technological services. The company saw growth across its segments, ranging from industrial, medical, defense, and automotive. In addition, given the favorable analysts' ratings and the company's fundamental strength, we think the stock could be an ideal pick now.
How Does Sanmina Corporation (SANM) Stack Up Against its Peers?
SANM has an overall POWR Rating of A, which equates to a Strong Buy rating. Check out these other stocks within the Technology - Services industry with A (Strong Buy) ratings: Celestica Corporation (CLS), NetScout Systems Inc. (NTCT), and Teradata Corporation (TDC).
SANM shares were unchanged in premarket trading Wednesday. Year-to-date, SANM has declined -7.43%, versus a -5.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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