Time to give Flex Stock a Go

Electronics manufacturing services company Flex NASDAQ: FLEX stock has fended off much of the market correction in 2022. The third-largest global electronic services manufacturer has been resilient despite the supply chain and logistics disruptions. Throughout the COVID-19 headwinds, Flex has continued to outperform with operations across production and electronics design. The Company also owns the leading solar tracker Nextracker, which management expects to generate over $1 billion in additional revenues with double-digit operating margins. Investors speculate on the timing of a potential spin-off payday, despite the Company viewing it as a core part of its efforts to grow its industrial footprint as well as driving higher valuations for the Company itself. Flextronics is also investing in its reliability business within healthcare, automotive and industrial to grow long-term shareholder value. With shares trading at just 9X forward earnings, value investors can look for opportunistic pullback levels to gain exposure.

Q3 Fiscal 2022 Earnings Release

On Jan. 26, 2022, Flex reported its Q3 fiscal 2022 results for the quarter ending December 2021. The Company reported earnings-per-share (EPS) of $0.50 versus consensus analyst estimates for $0.42, an $0.08 beat. Revenues fell (1.5%) year-over-year (YoY) to $6.62 billion, falling short of analyst estimates for $6.33 billion.  

Flat Guidance  

The Company issued in-line guidance for its fiscal Q4 2022 EPS of $0.41 to $0.46 versus $0.44 consensus analyst estimates. Revenues are expected to come in between $6.2 billion to $6.6 billion compared to $6.42 billion consensus analyst estimates. The Company expects fiscal full-year 2022 adjusted EPS between $1.85 to $1.90 and revenues to come in between $25.4 billion to $25.8 billion.   

Conference Call Takeaways

Flex CEO Revathi Advaithi stressed that performance of strong despites its “anticipated” supply chain challenges emphasizing the outcome underscores strong execution over “easier than expected macro challenges”. Growth is being driven by secular tailwinds and sequential growth in its cloud, communications, and industrial businesses. Its diverse product portfolio combined with investments in 5G, and optical technology, electrification, point-of-care diagnostics, and data center solutions are the drivers behind its growth. He summed it up, “Again, only a few companies have the capabilities to accomplish this efficiently and on a global scale, and that is driving strong new business wins for us. Other secular trends we're bullish about are our digitalization, data center growth, and infrastructure investments, driving growth in the energy sector on both residential and utility-scale. Now, these secular growth drivers have been fueling our pipeline and bookings growth as you can see in this year's results. As I said earlier, the combination of our investments in commercial and technical capabilities has positioned us well to capitalize on strong secular trends and has accelerated our growth potential going forward.”

$500 Million Convertible Preferred

On Feb. 2, 2022, Flex announced it will sell $500 million of convertible preferred equity in Nextracker to the TPG Rise Climate fund. This implies an enterprise value of $3 billion for Nextracker, in the form of a 5% annual dividend convertible preferred security. The investment will convert to Nextracker shares at the time of a qualified IPO. Flex also agreed to transition Nextracker into a separate business in the future with its S-1 filing confidentially remaining with the SEC. TPG Vice Chairman commented, “Nextracker has established itself as the leader in the solar tracking space by developing and deploying best-in-class product quality, technology, value, and flexibility” TPG Rise Business Unit Partner Steve Mandel commented, “As global solar installations continue to grow across the US and globally, Nextracker is well-positioned to be the long-term tracking provider of choice for solar developers and EPCs. We look forward to the value creation from our combined resources, experience, and expertise”.

FLEX Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for FLEX stock. The weekly rifle chart has had a relatively tight trading range with upper Bollinger Bands (BBs) starting to expand at $20.07 and lower BBs at $15.51. Shares peaked at the $19.99 Fibonacci (fib) level and bottomed at the $15.52 level. The weekly rifle chart appears to be forming an inverse pup breakdown with a falling 5-period moving average (MA) resistance falling at $17.09 followed by the 15-period MA at $17.47 and 50-period MA at $17.88. The weekly stochastic crossed back down with weekly lower BBs at the $15.52 fib. The weekly market structure low (MSL) buy triggers a breakout through $18.15. The weekly 200[period MA sits at the $13.33 fib level. The daily rifle chart is attempting to break out as the stochastic mini pup through the 20-band lifted shares with a rising 5-period MA at $16.80 and upper BBs at $19.26. Prudent investors can look for opportunistic pullback levels at the $16.43 fib, $15.72 fib, $14.06 fib, $13.33 fib/weekly 200-period MA, and the $12.60 fib. Upside trajectories range from the $20.26 fib up towards the $25.11 fib level.