Our first idea today is a circuit board manufacturer that beat earnings estimates by $0.07 in the latest quarter. And three analysts have raised their forecasts for the company in the past 30 days. Our second recommendation is the sale of an underperforming stock.
Buy: TTM Technologies (TTMI)
From Upside
One of the world’s largest makers of circuit boards, TTM Technologies (TTMI) operates more than 25 facilities and has some 30,000 employees. TTM stands for time-to-market, implying the company’s ability to help customers more quickly develop and market new products. A diverse revenue base spans roughly 1,500 customers in such high-growth markets as networking (25% of 2015 sales), wireless phones (21%), and aerospace (14%).
The company boasts surging cash flow, which provides flexibility to take advantage of growth opportunities. In the nine months ended September, cash flow from operations more than doubled to $201 million, while free cash flow jumped 120%. Up 104% so far this year, strong profit growth has helped propel the stock. In the September quarter, per-share earnings were $0.39, up 63% and above the three-analyst consensus of $0.32. In the first nine months of 2016, per share profits surged 52% and revenue rose 28%. Full-year earnings per share are expected to advance 46% to $1.27 on 19% sales growth. For 2017, Wall Street calls for per share earnings of $1.37, up 8%. The consensus estimate was $1.22 per share a month ago.
TTM is an aggressive holding because it operates in a cyclical industry characterized by uneven demand and stiff competition. In addition, the company’s sales are concentrated, with five customers accounting for 37% of revenue last year. Finally, profit margins are choppy, reflecting a high level of fixed operating costs and price fluctuations. Still, considering the company’s solid operating momentum and earnings-estimate trends, TTM represents an attractive value at 10.5 times expected 2016 earnings.
TTM is being initiated as a Buy. TTM’s Overall score of 97 ranks it No. 2 among 27
electronic-manufacturing stocks in our research universe. The group average is 58. The stock scores above 85 in four of the six Quadrix categories.
Richard J. Moroney, CFA, Upside, www.upsidestocks.com, 800-233-5922, November 2016