Longbow Upgrades Sanmina, But Still Sees Limited Organic Growth Visibility

In a report published Tuesday, Longbow analyst Joe Wittine upgraded the rating on Sanmina Corp. SANM from Underperform to Neutral, due to limited downside risk to the stock in the short term. On the other hand, analyst Wittine also said, "While wireless comm weakness is playing out in-line/worse than we had anticipated given a meager view on FY4Q (Sep), SANM is seeing better operational execution and mix along with upside in storage, networking, optical, and auto muting the impact." The analyst expects the consensus forecasts to be raised due to these marginally more favorable trends, along with the 14-week quarter for 4Q, share buybacks worth $48 million and "small but accretive M&A." "Yet, aside from shorts covering, we do not see much bounce in the shares given still uneven macro and limited visibility in organic growth dynamics heading into FY16," the Longbow report stated. The company's 4Q EPS guidance is ahead of the consensus, driven by a wider than normal sales guidance range on account of uncertainty related to the extra week. Sanmina also expects stable growth trends in most of its end markets, except for the ongoing weakness in wireless comm. Demand, inventory corrections and softening set top box demand. For 3Q, Sanmina reported its EPS ahead of the consensus, estimates and the guidance, on sales that came in at the high end of the guidance range. "Although wireless comm demand disappointed, confirming our checks, SANM saw upside in storage (cloud projects) and auto, growth in industrial and medical, and stable to modest growth in networking and optical," analyst Wittine reported.