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On Tuesday, BofA Securities increased its stock price target for Flextronics (NASDAQ: FLEX), an electronics manufacturing services provider, from $40.00 to $45.00, while reiterating its Buy rating on the stock.
The company, currently valued at $14.8 billion, has seen its stock surge over 72% year-to-date according to InvestingPro data. The adjustment reflects a more optimistic outlook on the company's power business within its Reliability segment, which is experiencing higher growth and margins.
According to the analyst from BofA Securities, Flextronics' power business is growing at a rate of 20% year-over-year and boasts a mid-teens operating margin, which they believe warrants a higher valuation multiple compared to the rest of the company's EMS business.
This segment is characterized by mid-single digit year-over-year growth with a 5-6% operating margin. InvestingPro data shows the company currently trades at a P/E ratio of 16.6x, which appears reasonable given its growth prospects and overall gross profit margin of 8%.
The analyst provided a sum-of-the-parts analysis, which breaks down revenue and operating margin estimates for the power business and other segments within Reliability, excluding power, as well as for the Agility segment. The analysis applies a 20x multiple to earnings estimates for the Power business and a mid-teens multiple to the rest of the business.
The new price objective of $45 is based on 15 times the projected calendar year 2026 earnings per share of $3.04. This is an increase from the previous target which was based on 14 times the calendar year 2025 earnings.
The analyst cites increased confidence in margin improvement as the Power business expands and as other segments within Reliability, such as renewable energy, core industrial, automotive, and medical equipment, are expected to recover.
The firm maintains its Buy rating on Flextronics, endorsing the company's prospects for long-term improvement in its business mix, portfolio optimization, margin growth, and capital returns. With an EBITDA of $1.6 billion in the last twelve months, this outlook suggests a positive trajectory for Flextronics as it continues to evolve and capitalize on the growth of its high-performing segments.
For deeper insights into Flextronics' valuation and growth prospects, including 13 additional ProTips and comprehensive financial analysis, investors can access the full research report on InvestingPro.
In other recent news, Flex (NASDAQ:FLEX) has been active in strategic management changes and expansionary moves. Kevin S. Krumm has been appointed as the new Chief Financial Officer, bringing over two decades of financial expertise.
In a bid to enhance its data center solutions, Flex acquired JetCool Technologies, a specialist in advanced liquid cooling systems. This acquisition is expected to address the increasing power and cooling demands in the AI and high-performance computing sectors.
Recent financial results for Flex show the company's second-quarter earnings exceeded analyst estimates with adjusted earnings per share of $0.64, surpassing the consensus of $0.57. However, Flex's revenue of $6.5 billion fell short of expectations of $6.53 billion, marking a 5.6% year-on-year decline.
For the third quarter, Flex has forecasted revenue between $6 billion and $6.4 billion, lower than Wall Street's estimate of $6.53 billion. The company's full-year outlook has also been revised, with revenue now projected at $24.9 billion to $25.5 billion, down from previous guidance.
Craig-Hallum, an analyst firm, maintained a Buy rating on Flex shares and increased the price target to $45 from $39, citing the company's effective control over operations and significant improvements in profitability. The firm's positive outlook is anchored on the company's fiscal year 2027 earnings per share (EPS) target of $3.00. These are among the recent developments for Flex.
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