Sanmina (SANM) recently delivered its third straight earnings beat, driven by strength in its Industrial, Defense & Medical business. Management provided a bullish outlook for next quarter too, prompting analysts to revise their estimates significantly higher.

It is a Zacks Rank #1 (Strong Buy).

Although shares of Sanmina are up more than 10% since the latest beat, it has plenty of room to run higher with shares trading at just 12x forward earnings.

Sanmina Corporation provides end-to-end manufacturing solutions to OEMs in a variety of industries. Its operations are managed in two segments:

• Integrated Manufacturing Solutions (IMS), and

• Components, Products and Services (CPS).

The sales breakdown by end market for the first 6 months of fiscal 2014 were as follows:

• Communications: 44%

• Industrial, Defense & Medical: 33%

• Computing & Storage: 13%

• Multimedia: 10%

Second Quarter Results

Sanmina delivered better-than-expected results for the second quarter of its fiscal 2014 on April 22. Adjusted earnings per share came in at 39 cents, beating the Zacks Consensus Estimate of 35 cents. It was the company's third consecutive positive earnings surprise.

Net sales rose 3% to $1.476 billion, ahead of the consensus of $1.446 billion. This was driven by a 28% surge in sales to industrial, defense and medical end markets, which offset declines in the other three end markets.

Meanwhile, interest expense declined 28% from the same quarter last year as the company continues to pay down debt.

Estimates Rising

Following solid Q2 results, management provided an encouraging outlook for Q3, prompting analysts to revise their estimates significantly higher for both 2014 and 2015.

This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $1.62, up from $1.52 before the Q2 report. The 2015 consensus has moved from $1.53 to $1.69 over the same period.

These positive estimate revisions have helped drive the stock up more than 10% since the earnings report. Despite this, the valuation picture still looks attractive.

Valuation

Shares of Sanmina trade at just 12x 12-month forward earnings, which is a discount to the overall market and the industry median of 13x. And its price to tangible book value ratio is a very reasonable 1.6.

Meanwhile, its free cash flow yield is solid at close to 8%.

The Bottom Line

Given its strong earnings momentum and attractive valuation, Sanmina are well positioned to run higher.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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