Goldman Issues 3 Upgrades, 2 Downgrades In IT Supply Chain

Goldman Sachs Group believes exposure to longer product cycles, less customer focus and enhanced pricing power resulting in improved margins is the key factors while selecting the stocks in IT supply chain. Therefore, analysts Mark Delaney and Timothy Sweetnam upgraded Flextronics International Ltd. (NASDAQ: FLEX), Amphenol Corporation (NYSE: APH) and Jabil Circuit, Inc. (NYSE: JBL).

The brokerage downgraded Arrow Electronics, Inc. (NYSE: ARW) and MACOM Technology Solutions Holdings Inc (NASDAQ: MTSI). While increased semi inventory and weaker ISM are behind the Arrow downgrade, shares of MACOM trading above the price target is cited as the reason for its revision in rating.

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The analysts pointed out that they have taken into consideration the following factors while analyzing the changes in new dynamics in IT supply chain:

• Return on cash based on invested cash.
• Volatile EPS based on end market and customer exposure.
• Revenue growth from organic.
• Return of cash to investors and leverage.

Further Justification

In a research note, the brokerage stated, "We upgrade FLEX and APH to Buy in part because they screen well on these metrics. We downgrade ARW (given the sub 50 ISM reading plus higher semi/distribution inventory) and MTSI (as MTSI is trading above our price target and customer concentration has increased) to Neutral. Lastly, we upgrade JBL to Neutral on more positive near-term factors, but JBL screens poorly for customer concentration."

Delaney and Sweetnam argued end markets would continue to remain choppy with the Street showing no interest to lift EPS estimates.

Ratings And Valuation

The following shares are assigned with a Buy rating:

• Flextronics: Price target of $16.
• Amphenol: Target price of $70.

The following shares are rated at Neutral:

• Arrow: Price objective of $63.
• Jabil Circuit: Price target of $21.
• MACOM: Target price of $41.

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