A week ago, Flex Ltd. (NASDAQ:FLEX) came out with a strong set of quarterly numbers that could potentially lead to a re-rate of the stock. It was overall a positive result, with revenues beating expectations by 8.0% to hit US$6.0b. Flex also reported a statutory profit of US$0.22, which was an impressive 71% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Flex after the latest results.
Following last week's earnings report, Flex's nine analysts are forecasting 2021 revenues to be US$22.7b, approximately in line with the last 12 months. Per-share earnings are expected to jump 28% to US$0.83. Before this earnings report, the analysts had been forecasting revenues of US$22.5b and earnings per share (EPS) of US$0.71 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the substantial gain in earnings per share expectations following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 14% to US$17.86. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Flex at US$21.00 per share, while the most bearish prices it at US$15.00. As you can see, analysts are not all in agreement on the stock's future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 1.5% revenue decline a notable change from historical growth of 0.2% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.8% next year. It's pretty clear that Flex's revenues are expected to perform substantially worse than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Flex's earnings potential next year. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Flex's revenues are expected to perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. We have estimates - from multiple Flex analysts - going out to 2023, and you can see them free on our platform here.
Before you take the next step you should know about the 3 warning signs for Flex (2 make us uncomfortable!) that we have uncovered.
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