Four Electronics Company Earnings to Look Into
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Thursday, July 25: the peak of second-quarter earnings season. These four electronics-related companies will report on that day, some with share prices that have skyrocketed this year. Will the positive trends persist? Let's take a look at each and see what we find.
A diversifying electronics manufacturing services company
What separates Benchmark Electronics (NYSE: BHE) from its electronics manufacturing services (EMS) provider peers is a more aggressive approach to attaining new production programs. Particularly, it is typically looking to broaden its customer base beyond the computing sector that it had relied heavily on in the past. It is focusing on the Industrial Control, Medical, Telecom, and other categories for expansion.
The strategy is helping to boost gross margins, thanks to a better mix and the ramping of new contracts. Indeed, the volume level increases on new contracts contribute to better profitability.
This being known, Benchmark is likely to endure a period of bottom-line declines, at least for a couple of quarters, as it launches high-volume product lines with several customers across numerous industries served. Overall, Benchmark is apt to report second-quarter earnings of $0.28 per share, versus $0.32 in the prior year, probably due to a temporary erosion of margins. Benchmark shares are trading at a P/E of around 15.9.
A microcontroller producer that could bounce back
Freescale Semiconductor (NYSE: FSL) competes with the likes of Microchip Technology and Atmel Corp. in the market for microcontrollers, which are basically programmable semiconductors that are incorporated into an increasing number of everyday products. The company has been struggling, operating in the red for most of the last three years.
Nevertheless, the company could well be on the cusp of a return to solid profitability. The microcontroller market has rebounded, which is partly a reflection of an improved automotive sector, as autos represent a major clientele group. Plus, digital networking (mainly LTE) related demand has risen. Freescale will likely post June-quarter per share earnings of around $0.03, with the gross margin still weighed down by soft plant utilization.
Accordingly, as demand and capacity absorption continue to turn upward, profits ought to climb, too. The shares, trading at a 10.6 P/E, based on fiscal 2013 and 2014 share earnings of $0.50 and $1.40 (years end in March of the following year), are worth a look for more venturesome investors.
A thermal vision product maker expanding its horizon
FLIR Systems (NASDAQ: FLIR) derives a substantial portion of its revenues from the U.S. Government and other government entities. With the current lull in military spending, sales in its Government Systems business have suffered somewhat. The company is more than offsetting that downturn through growth from commercial sectors, including automotive and marine. Its expansion into new avenues of business has been partly by way of acquisition, including the recent buyout of Traficon, a producer of traffic monitoring solutions. It had entered the marine market with the acquisition of Raymarine a number of years ago.
In total, FLIR will probably report second-quarter share earnings of about $0.37, as compared with $0.30 in 2012. Its shares are trading at a P/E ratio of 16.3, given estimates of $1.60 and $1.80 for this year and next, respectively.
A Networking-heavy EMS giant seeing its shares climb
Flextronics International (NASDAQ: FLEX) derives about 47% of its revenue from the Integrated Network Solutions unit, focused on telecom networking. Sales from the division were trending lower, having fallen 10% in the March quarter. Demand has stabilized, however. Plus, revenues from its High Reliability Solutions business are also apt to be reported as flat in the June quarter. Still, its High Velocity Solutions and Industrial & Emerging Industries divisions, comprising about 22% and 17% of sales, respectively, ought to post sales increases.
Overall, the company may well report per-share profits of about $0.14 in the June quarter, as compared with $0.23 in the previous year. The forward P/E ratio is 8.0, based on 2013 earnings of $0.80 per share and 2014 earnings of $1.00 per share. Flextronics' fiscal year ends in March of the following year. The basis for the expected earnings recovery are the aforementioned upturn in the network unit that should support a return to form for revenue and margins.
Where to Invest
Benchmark Electronics stock is a good choice for patient investors, in light of its likely earnings recovery as it continues to build its base of revenues. Freescale, as previously mentioned, is best-suited for those aggressive accounts anticipating the company's rebound to material profit levels. FLIR shares, up more than 20% over the last two months, may have further positive momentum if earnings grow as expected. However, at its current price, its appreciation potential has dimmed a bit. Finally, Flextronics, as one of the top EMS providers, is a solid investment. In all, a cyclical rebound is underway for several of these companies and this may be a good time to consider them.
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Damon Churchwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!