IEC: Up 50% in Just 3 Months, is IEC Electronics Still a Buy?

Manufacturing technology is constantly changing, both in terms of the types of products produced and the way those products are being made. Today’s complex electronic products demand more than just printed circuit board assemblies.

Newark-based IEC Electronics Corp. (IEC) specializes in delivering technical solutions for the custom manufacturing, product configuration, and verification testing of complex, engineered products that require high levels of manufacturing precision.

For 50 years, IEC has been providing solutions to industry-leading companies in various sectors with its on-site analytical testing laboratories, custom design, and test engineering services. The stock gained momentum after posting better-than-expected earnings results for its fiscal full-year 2020 (ended September 31) and has returned 58.2% over the past three months.

Here is what’s behind IEC’s performance:

Solid Client Portfolio

IEC manufactures a range of assemblies that are incorporated into various products encompassing electronics, interconnect solutions, and precision metalworking. The company supports a wide array of industries such as aerospace and defense systems, medical devices, industrial equipment, and transportation products.

Financial Performance

Over the past three years, IEC’s revenue and EPS have grown at a CAGR of 24.3% and 146%, respectively. In its fiscal first quarter (ended December 2020), IEC’s revenues increased 6.1% year-over-year to $47.5 billion. Gross profit was $5.7 million, representing 12.1% of the top line. Moreover, gross margin improved 40 basis points year-over-year to 12.1%. The EPS came in at $0.14, surging 27.3% compared to the year-ago value of $0.11.

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Favorable Analyst Estimates

Analysts expect IEC’s revenue to increase 12% in the current year and 4.7% next year. Moreover, its EPS is expected to grow 28.6% in the current quarter and 12.9% in the current year.

Mixed Macroeconomic Outlook

Because the COVID-19 pandemic profoundly impacted the manufacturing sector, the highly anticipated economic recovery could unleash a production boom to meet pent up demand. Furthermore, a revival in consumer spending and a modest rise in inflation this year could also help demand climb back to pre-pandemic levels. However, continued public health pressure from new coronavirus strains and a slower-than-anticipated global roll-out of vaccines are now making investors question the likelihood of a steady revival in industrial manufacturing space soon.

POWR Ratings Indicate Uncertain Prospects

JBL has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, IEC has a grade of A for Sentiment, in line with the favorable analyst estimates. But IEC has a grade of C for Momentum.

Moreover, IEC has a Value Grade of D, which is justified in part by the stock’s higher-than-industry trailing-twelve-month p/e ratio (29.33 vs 28.00).

In total we rate IEC on eight different levels. Beyond what we stated above, we have also given IEC grades for Growth, Stability, Quality, and Industry. Get all the IEC ratings here.

Bottom Line

As a full-service electronic manufacturing services (EMS) provider, IEC is helping industries to return to efficient production and distribution. However, given the slow domestic economic growth in the previous quarter, uncertainty regarding the potential for a robust rebound in manufacturing plants is raising serious concerns. Hence, given the solid market momentum and heightened volatility, investors should wait for a better entry point.

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IEC shares were unchanged in after-hours trading Tuesday. Year-to-date, IEC has gained 12.40%, versus a 4.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...