Sanmina Corp Valuation – July 2018 $SANM

Company Profile (excerpt from Reuters): Sanmina Corporation, incorporated on May 9, 1989, is a provider of integrated manufacturing solutions, components, products and repair, logistics and after-market services. The Company provides its offerings primarily to original equipment manufacturers (OEMs) in various industries, including communications networks, storage, industrial, defense and aerospace, medical, energy and industries that include embedded computing technologies, such as point of sale devices, casino gaming and automotive. The Company operates through two businesses: Integrated Manufacturing Solutions (IMS) and Components, Products and Services (CPS). IMS includes printed circuit board assembly and test, final system assembly and test, and direct-order-fulfillment. Its Components include interconnect systems (printed circuit board fabrication, backplane and cable assemblies) and mechanical systems (enclosures, precision machining and plastic injection molding). Its Products include memory, radio frequency (RF), optical and microelectronic solutions from its Viking Technology division, defense and aerospace products from SCI Technology Inc. (SCI), storage solutions from its Newisys division and cloud-based manufacturing execution system from its division, 42Q. Its Services include design, engineering, logistics and repair services.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SANM – July 2018

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 $2,040,326,374 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.56 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 442.19% Pass
6. Moderate PEmg Ratio PEmg < 20 20.82 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.53 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 1.56 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.41 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $1.46
MG Growth Estimate -1.70%
MG Value $7.46
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $21.17
MG Value based on 0% Growth $12.41
Market Implied Growth Rate 6.16%
Current Price $30.40
% of Intrinsic Value 407.48%

Sanmina Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.65 in 2014 to an estimated $1.46 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.16% 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 below the price.

At the time of valuation, further research into Sanmina Corp revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 20.82, which was below the industry average of 53.59, 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 $4.81.

Sanmina Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.81
Graham Number $0.00
PEmg 20.82
Current Ratio 1.56
PB Ratio 1.53
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $2,670,518,000
Total Current Liabilities $1,717,359,000
Long-Term Debt $393,236,000
Total Assets $3,779,355,000
Intangible Assets $0
Total Liabilities $2,316,365,000
Shares Outstanding (Diluted Average) 73,582,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.69
Sep2017 $1.78
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 -$2.58
Sep2002 -$33.60
Sep2001 $0.72
Sep2000 $3.90
Sep1999 $2.10
Sep1998 $0.84

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.46
Sep2017 $2.47
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 -$7.37
Sep2006 -$6.43
Sep2005 -$9.09
Sep2004 -$7.25
Sep2003 -$9.02
Sep2002 -$9.89

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Stocks for the Enterprising Investor – January 2017
8 Best Stocks for Value Investors of the Week – 12/10/16
Sanmina Corp Valuation – Initial Coverage $SANM

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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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