Why Sanmina Stock Just Got Sacked

Sanmina announced a major expansion of its Energy business with a state-of-the-art factory in Houston opening in 2027 to produce medium‑voltage distribution transformers, instrument transformers and switchgear and said it will co-design a custom medium‑voltage transformer with Croatia’s Koncar; despite the strategic move the stock fell about 7.3% as investors fretted over partner profit-sharing and looming cash needs. Analysts polled by S&P Global Market Intelligence forecast Sanmina could burn roughly $98 million this year and as much as $288 million next year, a dynamic that could reflect or be exacerbated by factory capex. Trading at about 35x earnings despite $4.46 in EPS last year and expected EPS growth, the company’s near‑term free‑cash‑flow pressure complicates the investment case unless the expansion’s benefits are clearly priced in.

Analysis

Sanmina announced a major expansion of its Energy business with a state-of-the-art factory in Houston due to begin production in 2027 and a co-design agreement with Croatia’s Koncar Electrical Industry to develop a custom medium-voltage transformer for sale in the U.S. Despite the strategic move, Sanmina shares fell about 7.3% through noon ET, indicating investor concern that the announcement does not address near-term financial strains.

The company remains profitable, having earned $4.46 per share last year with EPS expected to rise this year and next, but analysts polled by S&P Global Market Intelligence project free cash flow could be a negative ~$98 million this year and as much as ~$288 million in 2026. Management has not disclosed whether the Houston factory’s capex is already incorporated into those estimates, creating ambiguity about whether the expansion will further widen the projected cash burn and pressure liquidity.

At roughly 35x reported earnings, the stock’s valuation is stretched relative to the risk of near-term cash outflows and potential profit-sharing with Koncar, which investors cited as a selling catalyst. Key risks are 2026 cash-flow deterioration, the funding plan and partnership economics; key potential upside is clearer funding and margin disclosure that confirms long-term returns from the Energy expansion.

Key Decisions for Investors

• It may be prudent to wait for explicit 2026 free-cash-flow and capex funding guidance before initiating new long positions in SANM
• Existing holders should consider trimming or hedging exposure given a ~35x P/E and analyst-projected FCF deficits of up to ~$288 million in 2026
• Monitor quarterly disclosures for capex timing, the financial terms of the Koncar partnership, and any revision to analyst cash-flow estimates as primary re-rating catalysts
• Consider adding on material, confirmed downside to valuation if management clarifies that the factory capex is funded or if 2026 cash-burn forecasts are materially reduced