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Friday, 20 February 2004
"Reader Request" Flextronics (FLEX)
Hello Friends! Derek G. wrote in and asked me to take a look at Flextronics (FLEX). I let him know that I would do it in the BLOG....so Derek here it is! By the way, I do not own any shares of this stock.

First of all, I make my picks starting with stocks that are having good daily momentum. At this point FLEX doesn't fit the bill...but we can still take a loot. As I am writing this, FLEX is trading at $18.38, down $(.39) or (2.08)% on the day.

Looking at the latest quarterly results, the best story I could find was posted on the Flextronics website, under news, they related for the quarter ended December 31, 2003, (FLEX 3rd quarter), net sales were $4.15 billion, a 7.8% increase over the prior year's sales. Net income was $93.9 million, or $.17/share, a 41.9% increase from the prior year's net income.

If we look at the "5-Yr Restated" financials on Morningstar.com, we can see that revenue grew quickly between 1999 and 2001, increasing from $4.0 billion/yr to $12.1 billion. However, although growth in revenue has continued since that time, it has done so at a much slower rate increasing from $12.1 billion in 2001 to $13.5 billion in the trailing twelve months.

Earnings turned negative in 2001, when they were at $(1.01) and have stayed negative per Morningstar, totalling $(.72) in the trailing twelve months. It appears that with the recent reports, they are not losing money (?).

Free cash flow which was NEGATIVE 1 BILLION $'s in 2001, improved to $529 million in 2002, but subsequently has been dropping with $399 million in 2003 and $283 million in the trailing twelve months.

FLEX has $699.5 million in cash and $3.5 billion in other current assets, however they also have $3.1 billion in current liabilities and also $1.6 billion in long-term liabilities. It appears that the current assets including cash are adequate to cover the huge current liabilities...and indeed with positive cash flow this may also be improving...but this is not the prettiest balance sheet I have come across.

If we look at "Key Statistics" on Yahoo, we see that the market cap is large at $9.79 billion, the p/e ratio is 28.91 (forward fye 31-Mar-05), with a PEG at 1.42...so the valuation, while not inexpensive, is not overly highly priced. Price/sales is particularly nice at 0.72.

There are 529.17 million shares outstanding, with 435.60 million shares that float. Currently there are 18.33 million shares out short representing 2.727 trading days or 4.21% of the float. No cash dividend is paid, and the last stock dividend was a 2:1 split in October, 2000.

Taking a look at the 'technicals', we can see from a Stockcharts.com point and figure chart on Flextronics that this stock broke through a resistance level in early 2003 and for the last 14 months has been moving upward in a regular fashion. The momentum pricewise looks nice.

So Derek, what do I think? This may indeed be a terrific investment insofar as the technicals and the recent earnings report. I am a bit concerned over the debt load, the relatively poor record of losses, the decreasing free cash flow, and the fact that the stock is not really a terrific value. That does NOT mean that it isn't a good investment, it just means that when I look at this investment through MY 'tinted glasses' that are biased towards my idiosyncratic methods, it just isn't the best investment on my investment horizon. On the other hand, it isn't that bad either!

I hope that is helpful to you. Please let me know if you have any other questions, comments, or words of encouragement!

Regards.

Bob


Posted by bobsadviceforstocks at 2:03 PM CST | Post Comment | Permalink
Updated: Friday, 20 February 2004 2:06 PM CST

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