Sanmina-SCI: A Bargain at Current Prices

Sanmina-SCI (SANM) is one of the most undervalued stocks trading on the NASDAQ market. Currently trading at under 8 times earnings, a consensus 2008-2009 YOY earnings growth of 53%, and a PEG ratio of approximately one third the industry average, SANM is a steal at this level.

Sanmina-SCI has partnered with Lockheed Martin (LMT) to bid on a $3.5B  contract to build the Army's next-generation intercom system. Sanmina already provides communications systems for Army helicopters and Marines fighting in Iraq, and the Sanmina/Lockheed team has a 90% Chance of winning the contract. The Army has not said when it will announce the award, but it had been expected in June, per the Huntsville Times. I believe that the contract is due any day, and will likely be announced prior to Sanmina's earnings call next week.

The current stock price is under $1.10 (as of Monday's close) but Sanmina has $1.63 per share in cash. The company trades at a mere 0.07 price to sales with a $2.18 per share book value. It is no wonder that institutions own 83% of the float. Furthermore, insiders bought in February on the open market at $1.64 & $1.68 per share. Furthermore Institution Earnest Partners has increased its stake from 26MM to 35MM per SEC filing 7/10/2008

Given the current prospects, Sanmina is extremely undervalued. The stock  should easily gain 25% on the news and at least 50% over the next few months.

Disclosure: Long SANM

Comments

[TechSavy]

How do you know there is a 90% chance on that contract? What are your comps that allow you to get to 25% preimum to where it trades today? A little support data might help instead of just your general specualtion. SANM also may trade where it does given managements penchant for always overpromising / underdelivering, not to mention back dating issues.........

[User 212705]

Agree with TechSavy in general. The Board's decision to bring on Bronson to stop the bleeding was a good one, but not enough and not soon enough. SANM's problems are centered around a total failure in the operational management. Fixing the financials helps, but CEO, Pres Global EMS Ops and EVP Worldwide Sales & Mktg are responsible for dumping 90% of the company's value...

[bushwachergary]

Overpromising, underdelivering may be true, but isn't that now baked in, at a paltry share price of $1.10?

But, how can you refute cash $1.63 and stock price $1.10 in a "cash is king" world ?

[singh]

real nice alert

[observer32]

"8 times earnings"? I'm sorry to be blunt, but that's rubbish. Sanmina hasn't any earnings - it made a loss in the most recently reported quarter. Its guidance for 3rd quarter is a "non-GAAP" earnings of 5 cents/share, but what does that mean, exactly? I know what GAAP net income is. I don't know what "non-GAAP" earnings are. GAAP are there for a reason. If it's not GAAP, it's nonsense. "non-GAAP" earnings for the MRQ were also positive, and GAAP net income was negative, i.e. a loss not a profit.

[singh]

huge call my man