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Sanmina: Robust Balance Sheet, A Buffer Against Economic Downturn

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Investment Thesis

Sanmina Corporation (NASDAQ:SANM) operates successful nan tech industry. It serves clients worldwide by offering turnkey accumulation solutions, components, vanished goods, repairs, logistics, and support services. Concept creation, elaborate design, prototyping, validation, pre-production, manufacturing creation release, and merchandise industrialization are each services provided by nan firm's in-house engineers and designers.

SANM banal has performed good complete nan past year, rising by astir 58%; nan company's momentum is 63.13% compared to -8.59% for nan S&P 500, indicating that it is performing amended than its peers. The bully results tin beryllium attributed to nan precocious request from nan exertion sector. To maximize nan beardown demand, nan institution has divers gross streams, which I judge are cardinal successful exploiting nan beardown request successful nan market. The company's equilibrium expanse is solid, which bodes good for nan company's early growth. The comparative valuation metrics bespeak nan institution is undervalued, truthful I complaint it a buy.

Demand for Consumer Electronics is Fueling Growth

SANM guidance credited nan precocious request successful nan marketplace for nan company's occurrence aft it posted awesome financial results successful nan MRQ.

"Please move to Slide 7. Q1 IMS gross accrued to $1.94 billion, an summation of 7.7% complete nan anterior quarter, chiefly owed to beardown customer request and continued improvements successful nan proviso chain." - Kurt Adzema

In consequence to nan management's comments, present is my marketplace position assessment. The projected CAGR for nan world elastic electronics market is 11.8%, from $24.07 billion successful 2021 to $26.92 cardinal successful 2022. At a CAGR of 14.3% from 2018 to 2026, nan marketplace for electronics is projected to scope $45.88 billion. Increasing user request for electronics is captious successful processing nan elastic electronics industry.

The mobile gaming manufacture is evolving alongside advancements successful technology. Both technological advances and nan rising inclination of mobile gaming exertion are bolstering demand. Project Call 7.0 (PC 7.0), issued successful 2022 by NextFlex, America's Flexible Hybrid Electronics (FHE) Manufacturing Institute, seeks to money initiatives that heighten nan improvement and deployment of FHE while tackling important difficulties successful precocious manufacturing and supporting DOD priorities.

As a consequence of this demand-driven growth, I expect SANM will beryllium capable to return advantage of nan situation, chiefly owing to its divers sources of revenue, and boost its revenues and profits.

Diverse Revenue Streams: Distributing Risk

My sentiment is that nan company's expertise to make income from a wide assortment of sources is 1 of its strongest suits, arsenic this has allowed it to amended capitalize connected marketplace opportunities by serving a much divers group of customers. Due to this diversity, nan nonaccomplishment of immoderate gross watercourse would person overmuch little of an effect connected nan statement than it would person been if they had a azygous stream. We guidelines this connected nan thought that simultaneous shocks to each streams are highly improbable. Take a look beneath to spot really each main gross watercourse fared successful nan MRQ.

  • The Industrial, Medical, Defense, and Automotive segments brought successful $1.345 billion, which was a maturation of 4.5% from nan erstwhile 4th and 27.5% from nan anterior year.
  • For Communication Networks and Cloud Infrastructure, they brought successful $1.01 billion. This accrued 11% from nan erstwhile 4th and 44.6% from nan erstwhile year.

In total, they made $2.361 billion successful their first quarter. It was bully integrated growth, pinch a 7.2% summation from 1 4th to nan adjacent and a 34.4% summation from 1 twelvemonth to nan next. For nan first quarter, 50.6% of their income came from their apical 10 customers. When I look astatine this gross distribution, I tin confidently opportunity that it is well-balanced, which intends that consequence is being dispersed retired evenly if 1 gross root becomes inoperable for immoderate reason.

Robust Balance Sheet: Buffer Against Adverse Economic Climate

The spot of SANM's financial position is besides noteworthy. SANM is successful a very unafraid financial position, pinch short-term assets ($4.4B) that good outweigh its short-term obligations ($2.6B) and semipermanent liabilities ($548.4M).

Assets Vs Liabilities

Wall Street

It has much rate connected manus than it owes, and nan debt-to-equity ratio has decreased from 37.5% to 15.8% successful nan past 5 years. Its existent indebtedness is good covered by operating rate travel (87.5%), making it a very unchangeable institution successful position of indebtedness coverage. The liking payments connected SANM's indebtedness are good covered by its EBIT (19x coverage), truthful location is almost nary chance it will default connected its debt.

Debt

Wall Street

With its levered FCF trailing astatine $118.84M and its rate flows from operations pursuing astatine $299.78M, nan company's favorable rate flows complement its fantabulous liquidity position. This encapsulates nan firm's robust equilibrium sheet, which successful my opinion, acts arsenic a cushion against a challenging economical environment.

Valuation

All valuation metrics, pinch nan objection of PEG, show that SANM is trading astatine important discounts to manufacture medians, indicating that nan banal is undervalued comparative to its peers.

Valuation

Seeking Alpha

To complement this assertion, a DCF exemplary by finbox shows that nan institution is trading beneath its adjacent value.

DCF Model

Finbox

The exemplary estimates a $77.73 per stock adjacent worth for nan company, which is 20% much than nan existent value of $63.92. This inexpensive valuation allows willing parties to bargain into a increasing institution astatine a reasonable discount.

Conclusion

SANM is an up-and-coming institution pinch a divers gross stream, allowing it nan elasticity to maximize nan varied customer guidelines successful nan tech industry. With request for tech products connected nan rise, this institution is successful an fantabulous position to utilization nan marketplace pursuing its diversity. Additionally, nan institution has a very robust equilibrium expanse which I judge is simply a reliable buffer against an adverse economical climate. For these reasons, I americium bullish connected this banal and complaint it a bargain owed to its undervaluation. Potential investors seeking to diversify their tech manufacture portfolios tin see this promising institution astatine a discount.

This article was written by

Fade The Market floor plan picture

"A slice is simply a contrarian finance strategy that involves trading against nan prevailing trend."  We look astatine low-cap stocks that are not covered by mainstream finance firms successful hunt of early opportunities spanning a assortment of finance philosophies. The champion opportunities are recovered erstwhile looking wherever others won't. Let america cognize if you want america to screen immoderate circumstantial tickers and we'll beryllium judge to return a look! Formerly Moonshot Equity Analysis.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, and nary plans to initiate immoderate specified positions wrong nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: This effort is not intended to supply financial proposal but alternatively to stock my honorable appraisal of nan firm.

Editor: Naga



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