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Electronics contract manufacturer Flextronics (FLEX) - Get Flex Ltd. Report is attempting to reassemble the pieces of its broken stock. At Tuesday's closing price of $11.52, the stock is down 7% since the company posted fiscal second-quarter results on Oct. 24.

Flextronics earned 19 cents a share for the quarter ended Sept. 30, a penny below the consensus analyst estimate. Quarterly revenue grew 23% year over year to $4.7 billion, but that also fell $100 million short of expectations. The company, which counts

Sony Ericsson

as its largest customer (about 10% of overall revenue), also guided fiscal third-quarter expectations to the low end of previous expectations.

Even so, I believe it's worth noting that board member Rockwell Schnabel bought 25,000 shares of Flextronics on the open market Monday. Investors can interpret this action -- an insider placing his own money behind a stock that has been falling -- as a sign that the company's business has the potential to perform better than the market is currently giving it credit for.

With that in mind, I'm here to answer readers' questions: Should I do it? Can Flextronics rebound in 2007, or will its shares remain unplugged from the recent technology rally?

Despite the disappointing quarter, the company remains on track to earn 79 cents a share in fiscal 2007, ending March 31. That represents 15% annual profit improvement for Flextronics and the fourth straight year of positive growth. At current levels, the stock trades at 14.7 times expected full-year earnings, a 30% discount to the company's peers and 35% discount to its average valuation over the past five years, according to



Before one gets too bullish about Flextronics' valuation, it's worth noting that credit ratings agency Fitch also downgraded the company's issuer default rating Tuesday to BB+, or one level below investment grade. While this action could raise Flextronics' future borrowing costs, I believe the company's 14% debt-to-total capitalization ratio and 6.6 times earnings before interest and taxes (EBIT)-to-total interest ratio are sustainable.

To achieve its 25% full-year revenue growth target, the company will need its consumer electronics customers to have a strong holiday-selling season. About one-third of Flextronics sales come from the design and assembly of mobile handsets and cameras, with the former expected to post 47% year-over-year growth in fiscal 2007. The company also does a lot of business with leading personal computer-makers


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, as well as assembly of several key components of


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Xbox 360 video game system.

At Flextronics' Oct. 26 analyst meeting, CEO Michael McNamara, who ascended to his current position in January, also discussed how the company was winning new business from the likes of


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(JNPR) - Get Juniper Networks, Inc. (JNPR) Report


Eastman Kodak

( EK). In the case of Cisco, this is the first time that Flextronics has done business with the company in five years.

All things considered, I believe that shares of Flextronics are attractive at current levels. The company is growing along with the demand for the consumer electronics offerings of its customers. Flextronics already deals with the market leaders in every major area of the market and continues to sign new deals.

With the current valuation and recent insider purchase providing downside support, I believe the stock could trade up toward the low- to mid-teens over the next couple of quarters.

David Peltier is a research associate at In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;

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