Tuesday, September 19, 2006

Calls of Note Part 2

- Bear Stearns believes Flextronics' (NASDAQ:FLEX) large backlog of new business, the performance of its key customers, and beatable expectations all bode well for its 2H performance. They also find FLEX's valuation attractive at 12x CY07, near trough levels, and below its 5 yr historical avg forward P/E of 17.5x. Firm's $15 target represents 21% upside.

FLEX has transformed itself from a company managed by geographic regions to one managed by customer end-market segments. We believe this change was very well received internally as well as by customers who now see FLEX as a more focused, responsive, "can-do " supplier which they believe has been a big reason for its recent bookings and top-line growth.

FLEX's pipeline of new business wins includes large programs like Kodak, Motorola (new handsets), Sun, Nortel, as well as smaller programs like Juniper, Nokia (ODM phones), Psion, Parata Systems, AgfaPhoto, and Verigy.

They believe FLEX's two largest customers, Sony Ericsson (10-15% of sales, W810, K800, etc) and HP (10%+, primarily inkjets), have continued to gain market share in the Sept qtr and that both are poised to have a strong end of the yr.

The firm is increasing their Sept qtr rev and pre-option EPS ests to $0.21 and $4.9B from $0.20 and $4.78B based on strong customer momentum and new wins. They are now above FC of $0.20 and $4.79B.

Notablecalls: FLEX may see SOME upside on the call. Would not risk more that $20c.

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