Analyst: Wall Street Expects Some EMS Restructurings
Published: 21 October 2008
by Mike Buetow
NEW YORK – The low valuations of several big-name EMS firms suggests impending restructuring, an industry analyst said yesterday.
Celestica, Sanmina-SCI and Benchmark are all below historical norms and tangible book value, noted Sherri Scribner of Deutsche Bank Equity Research in a research note. This means Wall Street expects those companies will reduce overhead in the coming months.
“[T]rading below tangible book value suggests to us that the market expects some form of restructuring at these companies,” Scribner wrote. Sanmina-SCI and Celestica are trading below their cash values, she added.
While Sanmina-SCI’s profitability has increased measurably over the past year, the company is saddled with a 55% debt-to-capital ratio and high interest rates. The company carries $1.48 billion in debt, though none of it is due before June 2010, against $1.482 billion in cash and credit lines.
As of June, Celestica had $759 million in debt and $1.2 billion in cash and short-term investments.
Benchmark had $12 million in debt due in December 2012, and $289 million in cash and short-term investments, plus a credit line of $100 million.
Plexus had a $150 million loan due in 2013. It is the only significant debt the company carries. Plexus has more than $200 million cash on hand.
Flextronics actually carried more debt – $3.79 billion – than its competitors, but just $200 million is due before 2012, and the world’s second-largest EMS company had $1.77 billion in cash and short-term investments and more than $2 billion in credit lines available.
Celestica, Sanmina-SCI and Benchmark are all below historical norms and tangible book value, noted Sherri Scribner of Deutsche Bank Equity Research in a research note. This means Wall Street expects those companies will reduce overhead in the coming months.
“[T]rading below tangible book value suggests to us that the market expects some form of restructuring at these companies,” Scribner wrote. Sanmina-SCI and Celestica are trading below their cash values, she added.
While Sanmina-SCI’s profitability has increased measurably over the past year, the company is saddled with a 55% debt-to-capital ratio and high interest rates. The company carries $1.48 billion in debt, though none of it is due before June 2010, against $1.482 billion in cash and credit lines.
As of June, Celestica had $759 million in debt and $1.2 billion in cash and short-term investments.
Benchmark had $12 million in debt due in December 2012, and $289 million in cash and short-term investments, plus a credit line of $100 million.
Plexus had a $150 million loan due in 2013. It is the only significant debt the company carries. Plexus has more than $200 million cash on hand.
Flextronics actually carried more debt – $3.79 billion – than its competitors, but just $200 million is due before 2012, and the world’s second-largest EMS company had $1.77 billion in cash and short-term investments and more than $2 billion in credit lines available.
