Needham & Company on EMS, Components & Supply Chain: '11 Review & '12 Outlook; JBL & MEAS Remain Top Picks
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Up: 8 | Down: 5 | New: 26
Rating Summary:
15 Buy, 4 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Needham & Company on Electronic Manufacturing Services (EMS), Components & Supply Chain: Tepid Outlook For Growth
Needham analyst, Sean K.F. Hannan, said, "As 2011 concludes, demand conditions remain generally choppy and sluggish across the supply chain, with hopes that a recession in 2012 is avoided and at least some growth materializes. While the rising tide in the supply chain (from ’10) may have hit a pause in 2011, we expect industry growth next year (particularly for EMS names) to be modest but driven by newly outsourced programs. Within our universe, we consider JBL to be our top EMS pick due to its continued ability to grow and traction improving its business model while the sensor company, MEAS, is our top component/sensor pick due to its high design qualities and solid performance."
"Our Views On 2012. IF European debt issues remain generally contained and managed toward a longer-term resolution, and IF a recession doesn’t become a stark reality (both our current assumptions), we believe a sluggish to no-growth environment will have mixed results on our coverage names. Specifically, we view EMS providers as better positioned as the outsourcing of new programs to the industry could provide a few with a supportive layer of growth. Additionally, we expect the following: (1) tempered growth in low-to-mid-single digits for many players, with 2H weighting; (2) new program wins to be primary source of industry growth; (3) continued emphasis on non-traditional mix wins in addition to focused margin management (for higher turn/velocity businesses); (4) low levels of M&A other than small, strategic capabilities or services; (5) multiple expansion for growth businesses; and (6) smaller, niche EMS names may see larger players chip away at cache in non-traditional spaces. In general, we currently hold the belief that our companies are not as likely to face similar macro ambiguity when exiting 2012. Combined with pockets of growth, we see a scenario that could generate healthy recovery in multiples."
"Top Picks: Jabil Circuit (NYSE: JBL) & Measurement Specialties (Nasdaq: MEAS). JBL continues to demonstrate growth as a solid EMS player, but it also is migrating to a higher mix of non-traditional business that is stickier, higher visibility, better growth and margin. Our view point is that JBL has a top quality management team and the most tangible traction for improving its business model. MEAS remains a very well positioned sensor supplier that has been bolting on smaller, strategic and accretive companies in addition to growing ~10%+ organically. We view the high design nature of its products to maintain healthy price protection in addition to providing solid margins and revenue visibility."
Needham analyst, Sean K.F. Hannan, said, "As 2011 concludes, demand conditions remain generally choppy and sluggish across the supply chain, with hopes that a recession in 2012 is avoided and at least some growth materializes. While the rising tide in the supply chain (from ’10) may have hit a pause in 2011, we expect industry growth next year (particularly for EMS names) to be modest but driven by newly outsourced programs. Within our universe, we consider JBL to be our top EMS pick due to its continued ability to grow and traction improving its business model while the sensor company, MEAS, is our top component/sensor pick due to its high design qualities and solid performance."
"Our Views On 2012. IF European debt issues remain generally contained and managed toward a longer-term resolution, and IF a recession doesn’t become a stark reality (both our current assumptions), we believe a sluggish to no-growth environment will have mixed results on our coverage names. Specifically, we view EMS providers as better positioned as the outsourcing of new programs to the industry could provide a few with a supportive layer of growth. Additionally, we expect the following: (1) tempered growth in low-to-mid-single digits for many players, with 2H weighting; (2) new program wins to be primary source of industry growth; (3) continued emphasis on non-traditional mix wins in addition to focused margin management (for higher turn/velocity businesses); (4) low levels of M&A other than small, strategic capabilities or services; (5) multiple expansion for growth businesses; and (6) smaller, niche EMS names may see larger players chip away at cache in non-traditional spaces. In general, we currently hold the belief that our companies are not as likely to face similar macro ambiguity when exiting 2012. Combined with pockets of growth, we see a scenario that could generate healthy recovery in multiples."
"Top Picks: Jabil Circuit (NYSE: JBL) & Measurement Specialties (Nasdaq: MEAS). JBL continues to demonstrate growth as a solid EMS player, but it also is migrating to a higher mix of non-traditional business that is stickier, higher visibility, better growth and margin. Our view point is that JBL has a top quality management team and the most tangible traction for improving its business model. MEAS remains a very well positioned sensor supplier that has been bolting on smaller, strategic and accretive companies in addition to growing ~10%+ organically. We view the high design nature of its products to maintain healthy price protection in addition to providing solid margins and revenue visibility."
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