Why you should bet on electronics manufacturing services - November 25, 2022

[ad_1]

It’s no secret that we’re increasingly a digital species. It’s no secret that the average household uses twice as many electronic devices as our parents’ generation did. If anything, This trend is accelerating; It’s strange, though—we’re already drowning in them.

Therefore, No one doubts the future of companies that provide electronic manufacturing services. Market research firms also provide their long-term forecasts for the industry:

According to Fortune Business Insights, the market is healthcare; It is expected to expand at a CAGR of 6.8% from 2022 to 2029, driven by automotive and industrial. Research firm VR; It sees players adopting new technologies including IoT and 3D printing. sub-machine manufacturing; testing It is likely to go far enough to focus on designing PCBs and component assembly and re-engineering.

Mordor Intelligence is even more optimistic. The need to reduce costs and increase efficiency will propel EMS service companies at a CAGR of 9.01% between 2021 and 2026. Furthermore, high demand will lead to capacity constraints and force companies to increase their outsourcing. Mordor also mentions special government initiatives in countries such as India with the Production-Linked Incentive (PLI) program, which is expected to greatly boost regional EMS.

Therefore, the long-term outlook is strong and inflation is high; rising interest rates; And the long-term uncertainty surrounding geopolitical tensions and the impact on oil prices and the economic downturn that could result from all of that. Investors will be worried. How does this environment treat the EMS segment?

The answer to this question is really surprising. While much of the discussion in the rest of the market revolves around the demand side of the equation, the EMS segment doesn’t see much of a problem on that front, but only on the supply side, as it remains a limited segment. As before. The reason the demand side is still so strong is that many of these players cater to markets with long trading cycles. So their clients need to plan for a year or two or several years.

This provides much better visibility into future demand and allows for relatively stable demand. Therefore, most of the industry players have acceleration programs, new victories profit sharing; In short, we’re seeing everything you’d expect from a strong economic climate.

From an encouraging perspective, I’ve picked three stocks worth adding to your portfolio. They all hold a Zacks Rank #1 (Strong Buy). All of them saw strong demand, mainly from industrial, medical automobile (increased EV); Diversification within the defense and leading technology markets. All of them have significant operational capacity built in, a factor that offsets varying degrees of the supply chain issues they face, but helps them expand margins.

Jabil Inc. (JBL – free report)

Jabil, which operates through Electronics Manufacturing Services and different manufacturing services segments, is 5G; wireless and cloud; digital print and retail; Industry and packaging; network and storage; automobiles and transportation; connected devices; Provides health care and packaging. industry. Based in St. Petersburg, Florida.

Diversification is a key strategy for Jabil, and no product or product family represents more than 5% of its business today, management says. The breadth of skills it can use and 5G; cloud health care, packaging connected devices; Its focus on emerging verticals like semi-capital goods and electric vehicles is largely responsible for the strong traction its business is currently seeing.

Over the last 60 days, Jabil’s 2023 forecast (for the year ending August) has increased by 32 cents (4.1%) and its 2024 forecast by 48 cents (5.8%).

A valuation of 9.6XP/E is cheap relative to the S&P 500’s 17.9X and the industry’s 10.1X.

Sanmina Corporation (SANM – free report)

Sanmina Corporation through its integrated manufacturing solutions worldwide integrated manufacturing solutions; parts, products and repairs; Provides logistics and after-market services. and components; Products and Services Operating Segments. Most of its customers are industrial; medical defense and aerospace; automobile communication networks; cloud solutions; clean technology; computing and storage; Original equipment manufacturers in the multimedia and oil and gas industries. Sanmina is from California; Headquartered in San Jose.

strong demand; strengthening existing projects and winning new projects; A pipeline of opportunities; important markets (industrial, medical, defense, automotive); some vertical integration in the supply chain; Global and operational influence of standardized equipment and standardized manufacturing processes are key differentiators of the business and lead to consistent margin expansion. Sanmina took advantage of the Government of India’s PLI scheme to set up in India (along with Reliance Industries).

The Zacks Consensus Estimate for the year ending September 2023 jumped 74 cents (15.2%).

In 13.0XP/E, The shares aren’t cheap relative to the industry, but considering their own trading volume over the past year, they’re not too cheap. The S&P 500 is trading at higher volume.

Plxus Corporation (PLXS – free report)

Plexus is a healthcare/life sciences; Industry/Commercial; We provide EMS services to OEMs requiring mid-to-low volumes in the high-margin and high-growth segments of the aerospace/defense and telecommunications markets.

Plexus is currently offering new programs and opportunities; profit sharing; significant backlog and warehouse and factory automation; Vehicle electrification; We are currently seeing a strong demand environment due to participation in global growth markets such as the commercial space and robotic-assisted surgery. Successfully mitigating supply chain challenges that Plexus continues to see will help sales.

Share gains in the company’s semiconductors helped offset the tepid outlook of some players, with the net effect unlikely to be significant for Plexus. On the other hand, the fact that there are no operations in China is likely to be a positive given the recent US restrictions. Therefore, Management is very optimistic about the company’s growth prospects through 2023.

Analysts predict that this sentiment will be echoed. The Zacks Consensus Estimate for the fiscal year ending September 2023 has risen 49 cents (8.9%) over the last 30 days. The forecast for 2024 is up 41 cents (6.7%).

At 17.6XP/E; Shares are trading below the S&P 500 multiple and very close to their average value over the past year.

Monthly price performance