Sanmina Rises on Strong Sector Outlook
By Cindy Christ

Shares of Sanmina rose Friday after Chase H&Q upgraded the electronics contract manufacturer to a "strong buy" and Robertson Stephens upped its earnings estimates for merger partner Hadco Corp.

At the close, Sanmina (SANM) was up $2.62, or 4.9 percent, at $56. Hadco (HDC) gained $3.38, or 4.6 percent, to $76.62.

Shares of electronics contract manufacturers, who produce components for big equipment providers, have been among Wall Street's best performers since the start of the year.

According to Electronic Buyers News, leading firms in the sector are up 18 percent year to date, while the S&P is down about 1 percent.

"Earnings for most of the top-tier companies exceeded consensus expectations, revenue growth averaged 72 percent year-over-year, and the outlook for a continuation of strong earnings growth appears favorable," EBN said.

San Jose, Calif.-based Sanmina announced in March it would acquire Hadco, the largest North American manufacturer of printed circuit boards, in an all-stock deal valued at $1.3 billion.

By combining forces, the two hope to cash in on the outsourcing boom that's transforming billions of dollars in production costs to revenues for outsourcers like Sanmina and rivals Solectron (SLR), Flextronics (FLEX), Celestica (CLS) and others.

Sanmina now earns about 79 percent of its revenues from the communications sector, supplying components to the likes of Alcatel, Cisco Systems, Lucent Technologies, Motorola and Nortel Networks.

Analysts estimate the Hadco merger will add $1.1 billion to Sanmina's annual revenues.

After Thursday's market close, Hadco posted second quarter results for the period ended April 29. Earnings per share surged 121 percent to 75 cents, compared to 34 cents in the same period last year.

Cash earnings, which include net income plus after-tax cost of acquisition-related goodwill and intangibles, were $12.9 million, or 92 cents per share, compared to $6.9 million, or 51 cents, in 1999's second quarter.

Revenues totaled a record $275.4 million, up 8 percent from $255.6 million a year ago.

Net income was $10.6 million versus $4.6 million in the prior year, a 129 percent jump.

"The strong demand that developed late in the first quarter continued unabated during the second quarter," said Hadco President and CEO Andrew E. Lietz.

"We closed the quarter with record shipments. Backlog at the end of the quarter was at a new record," he added.

Hadco's second quarter backlog totaled $242.2 million, a 47 percent gain from $164.3 million last year. The company said bookings and backlog reflect orders to be invoiced within 90 days.

Citing stronger-than-expected quarterly results, Robertson Stephens's analyst J. Keith Dunne upped his cash earnings estimates for Hadco on Friday to $3.95 from $3.55 in 2000 and to $4.55 from $4.10 in 2001.

Dunne rates Hadco a "buy."

Also on Friday, Chase H&Q lifted its investment outlook on Sanmina, reiterating its "focus list" rating and 12-month, $75 price target.