On Monday, JPMorgan (NYSE:JPM) revised its outlook for Flextronics International Ltd. (NASDAQ: FLEX) stock, reducing the price target to $39.00 from $42.00 while maintaining an Overweight rating. The adjustment comes as the company faces a more challenging end-market environment, particularly in the automotive and industrial sectors.
The latest market commentary from the company indicated a negative shift in the end-market outlook. Flextronics noted cyclical pressures in the automotive industry that are anticipated to lead to reduced volumes in the second half of fiscal year 2025, as the broader industry sees a slowdown in sales momentum.
Additionally, macroeconomic pressures are expected to negatively impact the core industrial markets, as indicated by weaker industrial activity metrics. The renewables end-market is also continuing to experience softness.
Despite these challenges, Flextronics is seeing continued robust trends in its Power and Compute businesses. In response to the incremental end-market weakness, JPMorgan has moderated its revenue forecasts for Flextronics, particularly in the Reliability segment for the latter half of fiscal year 2025.
The firm now projects fiscal year 2025 revenues to be $25.5 billion, which is at the lower end of the company's prior guidance range of $25.4 billion to $26.4 billion. This forecast is supported by expected Reliability revenues of $6.3 billion to $6.4 billion for both the third and fourth quarters of fiscal year 2025.
JPMorgan anticipates that Flextronics' efforts in cost control and maintaining capacity in line with demand will mitigate some of the financial impacts from the reduced revenue forecasts. The company is expected to leverage the higher-margin businesses of Cloud and Power to offset some of the revenue declines. Consequently, the earnings per share (EPS) outlook for fiscal year 2025 has been slightly reduced to $2.37 from the previous $2.40.
The new December 2025 price target of $39 reflects a 12 times price-to-earnings (P/E) multiple on JPMorgan's calendar year 2026 earnings estimate for Flextronics. This is a decrease from the prior 13 times multiple, as the firm expects the re-rating of Flextronics shares—and those of the broader Electronic Manufacturing Services (EMS) group—to hinge more on a broader macroeconomic recovery, given the current challenges that limit near-term earnings upside opportunities.
In other recent news, Flex (NASDAQ:FLEX) Ltd. reported robust Q1 earnings for fiscal year 2025, with net sales of $6.3 billion and a GAAP operating income of $233 million. The company's shareholders approved several key proposals, including a share repurchase plan with a maximum expenditure of $1.7 billion.
Flex also announced strategic acquisitions of FreeFlow and Ojjo, expected to enhance the company's product lifecycle services and promote sustainability. Goldman Sachs (NYSE:GS) maintained its Buy rating on Flex, with a steady price target of $39.00, after the company's management discussed market trends and the financial outlook.
In addition, Craig-Hallum upgraded Flex's stock from Hold to Buy, reflecting confidence in the company's growth trajectory. Flex's data center business is projected to grow at a compound annual growth rate of approximately 20% from fiscal year 2024 through 2029. These recent developments underscore Flex's strategic moves and financial performance.
InvestingPro Insights
As investors digest JPMorgan's revised outlook for Flextronics International Ltd. (NASDAQ: FLEX), it's worth noting some additional insights from InvestingPro. The company's management has been actively repurchasing shares, signaling confidence in the company's value, and it boasts a high shareholder yield. These factors, combined with a low P/E ratio relative to near-term earnings growth, suggest that Flextronics may be undervalued by the market. More specifically, the company is trading at a P/E ratio of 13.25, with a forward-looking P/E (adjusted for the last twelve months as of Q1 2025) of 16.27, indicating a potentially attractive entry point for investors based on earnings.
However, it's important to acknowledge the weak gross profit margins that Flextronics has been experiencing, with a margin of 7.8% over the last twelve months as of Q1 2025. This could be a concern in the context of the challenging end-market environment highlighted by JPMorgan. Yet, Flextronics has demonstrated a strong return over the last year, with a 59.47% price total return, suggesting resilience and potential for recovery.
For those seeking further insights, InvestingPro offers additional tips on Flextronics, which can be found at https://www.investing.com/pro/FLEX. These tips may provide investors with a more comprehensive understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.