Acquisition Of ZT Systems Will Fuel Enduring Electronics Momentum

Key Takeaways

• Recent strategic acquisitions and investments in automation position Sanmina to capitalize on robust demand for advanced electronics manufacturing in high-growth sectors.
  
• Expansion of capabilities and a strong financial position enable sustained margin improvement, operational efficiency, and long-term earnings growth across diverse markets.
  
• Customer concentration, supply chain risks, and execution challenges from acquisitions and expansion threaten future growth, margins, and revenue stability amid shifting industry and geopolitical pressures.

Catalysts

Provides integrated manufacturing solutions, components, products and repair, logistics, and after-market services in the Americas, the Asia Pacific, Europe, the Middle East, and Africa.

• The imminent acquisition of ZT Systems is expected to add $5–6 billion of annual run-rate revenue, positioning Sanmina to double its net revenue within three years and capitalize on explosive growth in data center and AI infrastructure investment; this should provide a multi-year boost to overall revenue and EPS accretion from synergies and integration.
  
• Broad-based demand for complex electronics manufacturing remains strong across end-markets, especially in communications networks, cloud infrastructure, medical, defense, aerospace, and industrial segments; these markets favor sophisticated EMS providers like Sanmina and are expected to support long-term revenue growth and earnings stability.
  
• Sanmina's expanding footprint in North America and investment in automation/advanced capabilities directly align with the rising demand for regionalized, resilient supply chains and higher-value engineering-driven services, underpinning both future volume growth and potential margin improvement.
  
• Strategic investments in automation, digital transformation, and the shift toward full system integration (highlighted by the buildout of end-to-end solutions for data center AI, liquid cooling, advanced circuit boards, etc.) are already showing benefits in operational efficiencies and gross margin expansion, which should compound over time and lift net margins.
  
• The company is redeploying free cash flow and maintains a robust balance sheet, enabling ongoing investment in growth markets such as India and sustained share repurchases; this financial flexibility supports long-term earnings per share growth and allows the company to capture opportunities presented by the proliferation of IoT, increased electronics content in diverse industries, and ongoing sector consolidation.

Sanmina Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sanmina's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 3.9% in 3 years time.
• Analysts expect earnings to reach $375.6 million (and earnings per share of $7.33) by about July 2028, up from $259.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, down from 24.9x today. This future PE is lower than the current PE for the US Electronic industry at 24.2x.
• Analysts expect the number of shares outstanding to decline by 2.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

Sanmina Future Earnings Per Share Growth

Risks

• The planned acquisition of ZT Systems brings significant working capital and inventory risk, including the potential for write-downs on lagging-generation products and possible overvaluation of $2 billion in inventory, which could impact future net margins and earnings if market demand or product mix shifts unfavorably.
  
• Customer concentration remains high, with the top 10 customers accounting for 52.8% of revenue; any loss or reduction in orders from these major clients could cause outsized declines in revenue and net income.
  
• Geopolitical uncertainties, tariffs, and regionalization pressures may complicate global operations and force costly relocation or reorganization of manufacturing, potentially squeezing margins and reducing operational efficiency over the long term.
  
• The integration of ZT Systems and expansion into new markets (U.S., India, Mexico) require ongoing, substantial investment in both technology and talent; if these investments do not yield sufficient returns or if execution falters, long-term revenue and margin expansion targets may be missed.
  
• There are industry risks of accelerating OEM vertical integration and insourcing, especially as customers seek more control over supply chains and intellectual property, which could reduce Sanmina's addressable market and future revenue growth.

Valuation

• The analysts have a consensus price target of $114.5 for Sanmina based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.7 billion, earnings will come to $375.6 million, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of $120.76, the analyst price target of $114.5 is 5.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.