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Factors Setting the Tone for Sanmina (SANM) in Q3 Earnings

Zacks Equity Research

Sanmina Corporation SANM is slated to report third-quarter fiscal 2019 results on Jul 29.

Notably, the company surpassed the Zacks Consensus Estimate in two out of the trailing four quarters with average beat of 9.8%.

Coming to price performance, shares of Sanmina have returned 33% year to date, outperforming industry’s rally of 19%.



Past-Quarter Performance

In second-quarter fiscal 2019, total revenues came in at $2.13 billion, up 26.9% from the year-ago quarter.

The company reported non-GAAP earnings of 91 cents per share, which surged 82% from the year-ago figure. Moreover, the bottom line outpaced the Zacks Consensus Estimate by approximately 28.2%.

Guidance & Estimates for Q3

Sanmina estimates third-quarter revenues to lie in the range of $1.925 billion-$2.025 billion. Non-GAAP earnings are envisioned to come between 72 and 82 cents.

Meanwhile, the Zacks Consensus Estimate for third-quarter earnings is pegged at 77 cents per share, unchanged for the last 30 days. This indicates an improvement of about 40% from year-ago quarter.

Let's see how things are shaping up for this announcement.

Factors at Play

San Jose, CA-based Sanmina offers integrated manufacturing solutions, logistics, components, and related after-market services to OEMs (or original equipment manufacturers). The company primarily caters to industrial, defense, medical, and aerospace, automotive, communications networks and cloud end-markets.

The Electronics Manufacturing Services (EMS) player is striving to capitalize on new end markets to expand business opportunities, which bodes well for the to-be-reported quarter’s top line.

In fact, in second-quarter fiscal 2019 results, revenues from Industrial/Automotive/Defense/Medical end markets (representing 54.7% of total revenues) surged 35.1% year over year to $1.16 billion. Latest deal wins and robust pipeline from automotive customers is expected to aid revenue growth in the to-be-reported quarter.

Moreover, to lure customers from Industrial end-market, Sanmina recently rolled out heavy-duty (HD) IT and industrial rack that can support up to 4,500 lbs of equipment.

In the quarter under review, Sanmina also entered into a partnership agreement with Smiota, cloud-based agnostic delivery platform provider, to develop smart locker solutions, which holds promise.

Increasing popularity of Industrial IoT equipment is expected to lead to incremental adoption of the latest products, which favors growth prospects.

Sanmina Corporation Price and EPS Surprise

Sanmina Corporation Price and EPS Surprise

Sanmina Corporation price-eps-surprise | Sanmina Corporation Quote

Further, robust adoption of company’s wireless, optical and networking products from Communications Networks end-market holds promise. Accelerated deployment of 5G is a key catalyst, which is anticipated to buoy Sanmina’s third-quarter results pertaining to Communications end market.

Meanwhile, growing clout of cloud-computing technologies is likely to lead to increased demand from cloud-based service providers, which is expected to favor the upcoming quarterly performance.

However, softness in demand from traditional OEMs owing to macroeconomic headwinds remains a headwind. Further, increasing investments on product enhancement is likely to limit margin expansion.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Sanmina has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Asure Software ASUR has an Earnings ESP of +8.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Warrior Met Coal, Inc. HCC has an Earnings ESP of +8.66% and a Zacks Rank #2. The company is scheduled to report second-quarter 2019 earnings on Jul 31.

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank #2. The company is set to report third-quarter 2019 earnings on Jul 31.

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