Flex Ltd. FLEX has priced a public offering of $450 million aggregate principal amount of senior notes. The note carries an interest rate of 4.875%. The notes will mature on Jun 6, 2029, subject to customary closing conditions. The company has filed for registration under the Securities and Exchange Commission (the “SEC”).
J.P. Morgan Securities LLC, BNP Paribas Securities and Citigroup Global Markets Inc. are acting as joint book-running managers for the purpose. The offering is made under the company’s shelf registration statement.
Net proceeds from the planned offering along with available cash will be used to fund the concurrent cash tender offer for any and all of the $500,000,000 outstanding aggregate principal amount, carrying an interest rate of 4.625% and due 2020.
The company’s share price movement has been quite favorable. On a year-to-date basis, its shares have returned 21.8%, outperforming the industry’s growth of 15.3%.
Factors in Favor of Flex
The company has a diverse end-market as well as customer base, courtesy of its “Sketch-to-Scale” approach. Moreover, based on its growing intellectual property (“IP”) portfolio, the company is well positioned to address the needs of customers, who are looking to leverage the proliferation of Internet of Things (IoT), autonomous/connected cars, artificial intelligence (“AI”), Industrial automation, augmented & virtual reality (AR/VR), and 5G technologies.
As of Mar 31, 2019, cash & cash equivalents were $1.697 billion, up from $1.503 billion at the end of the previous quarter. Flex generated $245.6 million as net cash from operations during the reported quarter compared with $283.3 million in the previous quarter. Free cash flow came in at $119.6 million compared with $128.3 million reported in the third quarter.
During the fourth quarter, the company repurchased approximately 6.6 million shares for $65 million. With share buybacks, the company intends to return 50% or more of its annual free cash flow to shareholders.
The public stock offering is expected to boost the company's financial flexibility and help meet its financial obligations in an efficient way. Moreover, it provides ample scope to deploy capital for long-term growth opportunities and rewarding higher returns to stockholders, at the same time.
Flex is benefiting from robust performance across edge and hyperscale computing end markets. New bookings primarily from medical group deserve a special mention. Strength in the company’s IP portfolio and low-cost manufacturing are other positives. Moreover, stringent cost measures are aiding margin expansion.
However, sluggish demand from China, soft demand from networking customers, and weakness in semiconductor capital equipment and energy verticals negatively impacted the last reported financial performance.
The company had reported fourth-quarter fiscal 2019 adjusted earnings of 27 cents per share, which came in line with the Zacks Consensus Estimate. The figure declined 3.6% from the year-ago quarter.
Revenues also declined 2.9% from the year-ago quarter to $6.226 billion, lagging the Zacks Consensus Estimate of $6.481 billion.
Nonetheless, the company has an expected EPS growth rate of 16.5%. Notably, the stock has delivered positive earnings surprises in two of the trailing four quarters, with average beat of 4.2%.
Zacks Rank and Stocks to Consider
Flex currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are Cirrus Logic, Inc. CRUS, Universal Display Corp. OLED and Match Group, Inc. MTCH, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Cirrus Logic, Universal Display and Match Group have a long-term earnings growth rate of 15%, 30% and 15.15%, respectively.
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