Results: Flex Ltd. Exceeded Expectations And The Consensus Has Updated Its Estimates
As you might know, Flex Ltd. (NASDAQ:FLEX) just kicked off its latest second-quarter results with some very strong numbers. It was overall a positive result, with revenues beating expectations by 8.0% to hit US$6.0b. Flex also reported a statutory profit of US$0.22, which was an impressive 71% above what the analysts had forecast. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Flex after the latest results.
See our latest analysis for Flex
Taking into account the latest results, Flex's nine analysts currently expect revenues in 2021 to be US$22.7b, approximately in line with the last 12 months. Per-share earnings are expected to bounce 28% to US$0.83. In the lead-up to this report, the analysts had been modelling revenues of US$22.5b and earnings per share (EPS) of US$0.71 in 2021. There was no real change to the revenue estimates, but the analysts do seem more bullish on earnings, given the decent improvement in earnings per share expectations following these results.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 14% to US$17.86. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Flex, with the most bullish analyst valuing it at US$21.00 and the most bearish at US$15.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. These estimates imply that sales are expected to slow, with a forecast revenue decline of 1.5%, a significant reduction from annual growth of 0.2% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.8% next year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Flex is expected to lag the wider industry.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Flex following these results. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Flex analysts - going out to 2023, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Flex (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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