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Sanmina Corp Valuation – Initial Coverage $SANM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Sanmina Corp (SANM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Sanmina Corporation is a provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. The Company provides these offerings primarily to original equipment manufacturers (OEMs), in the communications networks, computing and storage, multimedia, industrial and semiconductor capital equipment, defense and aerospace, medical, clean technology (CleanTech) and automotive industries. Its operations are managed as two businesses such as Integrated Manufacturing Solutions (IMS) and Components, Products and Services (CPS). The Company’s services include product design and engineering, including initial development, detailed design, prototyping, validation, preproduction services and manufacturing design release; manufacturing of components, subassemblies and complete systems; final system assembly and test, direct order fulfillment and logistics services, and after-market product service and support, and global supply chain management.

SANM Chart

SANM data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

moderngraham-valuation-of-sanm-december-2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,523,838,015 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.70 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -264.80% Fail
6. Moderate PEmg Ratio PEmg < 20 12.14 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.64 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.70 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.45 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

sanm-value-chart-december-2016

EPSmg $2.75
MG Growth Estimate 15.00%
MG Value $106.05
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $39.94
MG Value based on 0% Growth $23.41
Market Implied Growth Rate 1.82%
Current Price $33.45
% of Intrinsic Value 31.54%

Sanmina Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.14 in 2013 to an estimated $2.75 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Sanmina Corp revealed the company was trading below its Graham Number of $36.05. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 12.14, which was below the industry average of 22.64, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.57.

Sanmina Corp performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

sanm-charts-december-2016

Net Current Asset Value (NCAV) $4.57
Graham Number $36.05
PEmg 12.14
Current Ratio 1.70
PB Ratio 1.64
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/16/2016
Total Current Assets $2,375,652,000
Total Current Liabilities $1,401,263,000
Long-Term Debt $434,059,000
Total Assets $3,625,222,000
Intangible Assets $0
Total Liabilities $2,015,419,000
Shares Outstanding (Diluted Average) 78,787,000

Earnings Per Share History

Next Fiscal Year Estimate $2.62
Sep2016 $2.38
Sep2015 $4.41
Sep2014 $2.27
Sep2013 $0.93
Sep2012 $2.16
Sep2011 $0.83
Sep2010 $1.48
Sep2009 -$1.67
Sep2008 -$5.52
Sep2007 -$12.90
Sep2006 -$1.62
Sep2005 -$11.94
Sep2004 -$0.60
Sep2003 -$1.61
Sep2002 -$33.60
Sep2001 $0.72
Sep2000 $3.90
Sep1999 $2.10
Sep1998 $0.84
Sep1997 $1.38

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.75
Sep2016 $2.69
Sep2015 $2.60
Sep2014 $1.65
Sep2013 $1.14
Sep2012 $0.65
Sep2011 -$1.26
Sep2010 -$2.88
Sep2009 -$5.62
Sep2008 -$7.24
Sep2007 -$7.31
Sep2006 -$6.30
Sep2005 -$8.89
Sep2004 -$6.99
Sep2003 -$8.69
Sep2002 -$9.89
Sep2001 $1.90

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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