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Why Flextronics (FLEX) Is Jumping Today

Stocks in this article: FLEX MSFT GOOG

NEW YORK (TheStreet) -- Flextronics (FLEX) gained 8.6% to $8.36 on Thursday after a better-than-expected fiscal third-quarter earnings report.

The contract electronics maker posted earnings of 26 cents a share. Analysts surveyed by Thomson Reuters estimated earnings of 23 cents a share. Flextronics reported revenue of $7.18 billion for the quarter, beating analyst estimates of $6.7 billion.

The Singapore-based company said strong demand for video game consoles and smartphones helped revenue. Flextronics produces Xbox consoles for Microsoft (MSFT) and smartphones for Google's (GOOG) Motorola division (which Google just sold to Lenovo, which Flextronics already has a relationship with).

Flextronic said it expects fiscal fourth-quarter earnings of between 18 cents and 22 cents a share and revenue of between $5.9 billion and $6.3 billion. Analysts estimate earnings of 19 cents a share and $5.97 billion in revenue.

Analyst firm Craig-Hallum upgraded Flextronics to "buy" from "hold," raising the price target to $11 from $10.

TheStreet Ratings team rates FLEXTRONICS INTERNATIONAL as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about its recommendation:

"We rate FLEXTRONICS INTERNATIONAL (FLEX) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FLEX's revenue growth has slightly outpaced the industry average of 1.7%. Since the same quarter one year prior, revenues slightly increased by 3.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • FLEXTRONICS INTERNATIONAL's earnings per share declined by 20.8% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, FLEXTRONICS INTERNATIONAL reported lower earnings of $0.45 versus $0.71 in the prior year. This year, the market expects an improvement in earnings ($0.80 versus $0.45).
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • FLEX's debt-to-equity ratio of 0.97 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that FLEX's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.55 is low and demonstrates weak liquidity.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. When compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, FLEXTRONICS INTERNATIONAL's return on equity is below that of both the industry average and the S&P 500.

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