Stock Preacher

Flextronics International Ltd. (NASDAQ: FLEX)

Flextronics International Ltd. (FLEX) is a leading provider of design and electronics manufacturing services to original equipment manufacturers of various products in markets such as: infrastructure, mobile communication devices, computing, consumer digital devices, industrial, semiconductor, white goods, automotive, marine, aerospace and medical devices. Through a network of facilities in 30 countries on four continents, FLEX provides a range of vertically-integrated global supply chain services through which it designs, builds and ships a complete packaged product for its customers. The Company’s service offerings includes printed circuit board and flexible circuit fabrication, systems assembly and manufacturing, logistics, after-sales services, design and engineering services, original design manufacturing (ODM) services, and components design and manufacturing. As of March 31, 2009, the Company’s total manufacturing capacity was approximately 27.2 million square feet.

FLEX was founded in 1990 and is headquartered in Singapore.

Source: Reuters.com, SEC Filings, Fiscal Year ending March

Financial Summary

For the second quarter ended October 2, 2009, FLEX posted earnings of 13 cents per shares, ahead of consensus estimates of 9 cents. Revenues in the quarter improved by 1% sequentially but declined 34.2% year-over-year to $5.83 billion. Despite this, the result still came in ahead of consensus estimates of $5.77 billion. For the said quarter, FLEX generated $312 million of operating cash flow and $270 million of free cash flow (defined as net cash provided by operating activities, less purchases of property & equipment, net of dispositions). Net debt, which is total debt less total cash, was further reduced in the current quarter by $483 million to $587 million.

“The improvement of our financial performance this quarter was a real positive and we are seeing signs of strengthening in the economy and a general improvement in business conditions,” Mike McNamara, FLEX CEO, said in a statement.

Cash and cash equivalents totaled $2 billion at October 2, 2009, representing an increase of $289 million from the prior quarter end.

During the second quarter, the Company recognized $13 million of pretax restructuring charges comprised of $9 million of cash charges primarily related to employee severance costs and $4 million of non-cash asset impairment charges. For the current fiscal year, it expects to realize cost savings of $230 million to $260 million from its restructuring efforts.

Analyst Consensus

Analysts following FLEX rates its shares “Outperform.” This is the consensus forecast amongst 15 polled investment analysts.

Source: http://markets.ft.com/tearsheets/analysis.asp?s=FLEX%3ANSQ

Investment Highlights

Since its inception in 1990, FLEX has grown to become one of the leading providers of vertically-integrated advanced design and electronics manufacturing services (EMS) to original equipment manufacturers (OEMs). It offers the broadest worldwide EMS capabilities, from design resources to end-to-end vertically integrated global supply chain services. Operating in 30 countries, FLEX leverages its global economies of scale in manufacturing, logistics, procurement, design, engineering and ODM services across a wide range of products and customer segments. For its fiscal year ended March 31, 2009, FLEX’s sales in Asia represented 49% of the total net sales. The Americas and Europe accounted for 33% and 18%, respectively.

FLEX has organized itself focused market segments, which include automotive, computing, consumer, industrial, infrastructure, medical and mobile, serving as the cornerstone of the Company’s market strategy. Its business units consist of strategic technologies and augmented services that are leveraged across all segments and customer product categories to create scalability and to add flexibility and speed to its segments.

On October 15, the Company announced a move to expand its presence in China through the development of a new facility in Wuzhong. According to the report, the new facility will support the growing demand for computing products in China and will include a design center and extended manufacturing capabilities in the Wuzhong Export Processing Zone (WEPZ).

“We are pleased to announce this expansion and believe that Wuzhong is an excellent location based on its world-class infrastructure, supply chain ecosystem and close proximity to Suzhou’s Higher Education Center, which has a reputation for excellent education programs and highly-skilled talent,” Sean Burke, president, Flextronics Computing, said in statement.

The design center will be completed by the end of 2009 and the manufacturing facility is expected to be completed by the end of 2010.

On October 21, FLEX announced it is expanding its medical disposables offering and has signed an agreement to acquire Slomedical S.R.O, a leading European manufacturer of disposable medical devices, through a share purchase agreement. With this strategic acquisition, the Company expects to expand its overall capability for medical disposables through Slomedical’s low cost European location in Slovakia and significantly advance its disposables strategy throughout Europe. The deal is expected to close before the end of the calendar year, pending required regulatory clearances.

FLEX reported solid financial progress across all aspects of its business during the second quarter, which reflected the Company’s efforts to re-size its business to adapt to current market conditions, according to CFO Paul Reed.

“We are very pleased with the healthy expansion of our adjusted gross margin, which rose by 90 basis points sequentially,” Read said in a statement. “In addition, we achieved a cash conversion cycle of 15 days, generated free cash flow of $270 million and our significantly reduced net debt position of $587 million is comparable with the period prior to our Solectron acquisition.”

For the third quarter, the Company expects to realize earnings of $0.14 to $0.16 per share on revenue of $6 billion to $6.40 billion, slightly above analysts’ expectations of $0.13 per share on revenue of $6.25 billion for the quarter ending December 31, 2009.

SOURCE: http://www.flextronics.com/

Market Outlook

Market observers are generally bullish on consumer electronics industry, which growth was positively impacted by the revolution in digital technology over the past few years. Industry research firm RNCOS says in a new report that the global consumer electronics market is forecast to grow at a CAGR of around 5% during 2009–2012. It added that the global consumer electronics shipment will also grow at a CAGR of around 5% during the same period. The research report titled,  “Consumer Electronics Market Forecast to 2012”, stated that “the American region, mainly U.S., is driving the global consumer electronics industry, closely followed by Europe. The report went on to say that “In future, Asia Pacific region will constitute the major portion of the consumer electronics industry, mainly due to the increase in demand from the developed countries in the region.” The global consumer electronics market was reportedly valued at $335.2 billion in 2008.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

Moving Average

FLEX is below its 13-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

MACD

The MACD for FLEX currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Bollinger Bands

FLEX is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Source: http://www.scottrade.com

Comparative Analysis

Source: Yahoo! Finance, Analyst Estimates.

*PPS as of October 28

Insider Trading Activity

NET SHARE PURCHASE ACTIVITY

Data provided by Thomson Financial

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