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Flex (FLEX) to Produce Ventilator Parts Amid Coronavirus Crisis

Flex Ltd. FLEX is set to commence production of ventilator parts to address the shortage of ventilators stemming from the COVID-19 spread, per a Bloomberg report, as revealed by John Carlson, the company’s president of the Health Solutions group.

The electronics contract manufacturer expects to furnish 25,000 to 30,000 ventilators a month by May or June. Carlson stated that the figure reflects "the industry’s typical annual output."

Nevertheless, in the wake of coronavirus pandemic, 1 million ventilators are presently required to support patients infected by coronavirus, which primarily affects respiratory systems.

Per the report, Flex is developing its own versions of tubes and valves via reverse engineering of existing units as well as utilizing 3-D printing and other advanced techniques.

Flex’s attempt to address the coronavirus-led ventilator demand by ramping up production and assembling of ventilator parts is expected to boost brand recognition and aid the stock’s performance in the days ahead.



Notably, shares of Flex have declined 40.4% on a year-to-date basis compared with the industry’s fall of 27%.

Focus on Coronavirus-led Ventilator Demand

Ventilator production is impeded by the restricted availability of exclusive tubes and valves that control air flow. These are typically developed in-house by small specialist companies that supply them to medical-device players that assemble ventilators. This is constraining accelerated production of ventilators.

Flex is likely to succeed in the new venture backed by its expertise in procuring electronic parts, while maintaining regulatory compliance. Moreover, the company has plants in the United States, Mexico and China, among others, which is expected to aid it in finishing the contract.

The deal is expected to bolster revenues in the High Reliability Solutions (HRS) segment, which comprises the Health Solutions group, in the quarters ahead. Per the Bloomberg report, “Flex generates about $2 billion in annual sales by manufacturing medical devices for other companies.”

Notably, in the third quarter of fiscal 2020, HRS revenues were $1.245 billion (19.3% of total revenues), up 3% from the year-ago quarter’s figure. The upside was driven by automotive business, which increased 7% from the year-ago quarter’s level. However, this was offset by a 1% decline in health solutions.

It should be noted that on Mar 9, Flex had announced that it does not expect to meet fourth-quarter fiscal 2020 revenue guidance due to COVID-19 outbreak. For fourth-quarter fiscal 2020, the company had expected revenues in the range of $5.8-$6.2 billion.

Moreover, other electronic component manufacturers and even automakers, are also striving to develop similar ventilator devices, to address the demand amid the coronavirus crisis. This bodes well for the overall healthcare system but is likely to weigh on Flex’s growth prospects in the space.

Zacks Rank & Stocks to Consider

Currently, Flex carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector are Avid Technology AVID, OSI Systems OSIS and HP HPQ. While Avid Technology sports a Zacks Rank #1 (Strong Buy), both OSI and HP carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Avid Technology, OSI Systems and HP is currently pegged at 20%, 12.5% and 2.16%, respectively.

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