FLEX Falls 10.6% in the Past Month as AI Growth Meets Execution Risk

Flex Ltd. FLEX shares have fallen 10.6% in the past month even as fiscal first-quarter 2027 results improved and management raised its full-year outlook. The pullback raises the question of whether improving fundamentals create an opportunity or whether elevated expectations still leave room for volatility.

AI infrastructure remains the main growth engine, but the investment needed to support that demand has pushed leverage higher and reduced expected cash conversion. With the stock still carrying a premium to its own history, execution now matters as much as growth.

FLEX’s CPI Growth Still Sets a High Bar

Cloud and Power Infrastructure (CPI) revenues rose 35% year over year to $2.20 billion in the fiscal first quarter, supported by Power and continued Cloud & Cooling ramps. CPI adjusted operating income advanced 38% to $214 million, while margin improved 20 basis points to 9.7%.

Management expects CPI revenues to rise 65%-75% in fiscal 2027, with more than 90% of business booked for the remaining three quarters. That visibility is valuable, but it also leaves little room for program delays or weaker-than-planned margin conversion as new capacity comes online.

Flex Raises Guidance Despite the Pullback

Total revenues climbed 20.6% to $7.93 billion, beating the Zacks Consensus Estimate of $7.58 billion by 4.6%. Adjusted earnings rose 38.9% to $1.00 per share and topped the consensus estimate of 93 cents by 7.5%. Adjusted operating margin expanded 70 basis points to 6.7%.

Flex raised fiscal 2027 revenue guidance to $33.7-$35.2 billion from $32.3-$33.8 billion and adjusted earnings guidance to $4.42-$4.74 per share from $4.21-$4.51. The adjusted operating margin outlook was also lifted at the top end to 7.2%.

Image Source: Zacks Investment Research

FLEX’s Spending Cycle Adds Balance-Sheet Risk

The stronger outlook comes with a heavier funding burden. Long-term debt rose to $5.22 billion as of June 26 from $3.75 billion at fiscal 2026-end, while first-quarter acquisition spending reached $1.13 billion. Flex also raised $2.83 billion through bank borrowings and long-term debt during the quarter.

Management expects $1.5-$1.6 billion of fiscal 2027 capital expenditures and free cash flow conversion of roughly 40%, including separation costs. Competition raises the return hurdle. Jabil Inc.JBL is among the electronics manufacturing services providers competing with Flex for manufacturing programs. Celestica Inc. CLS is another named competitor, reinforcing the importance of pricing discipline and program execution.

Flex Valuation Leaves Less Room for Execution Slips

FLEX trades at 22.2X forward 12-month EPS, well above its five-year median of 12.6X. The multiple is also slightly above 21.6X for the Zacks Computer and Technology sector and 20.8X for the S&P 500, though below the Zacks sub-industry’s 30.9X.

The discount to the sub-industry offers some relative support, but the premium to Flex’s history narrows the margin for error. Investors are paying for CPI ramps, margin expansion and returns on capacity investments. Any miss on those fronts could keep volatility elevated even if CPI demand stays on plan.

FLEX’s Mixed Signals Favor Patience

The 10.6% pullback does not remove execution risk. Faster earnings growth and booked CPI demand support the fundamental case, while heavier investment, higher debt and a premium to Flex’s historical valuation argue against treating the decline as an automatic buying signal.

The stock currently carries a Zacks Rank #3 (Hold), alongside a Value Score of B, Growth Score of C, Momentum Score of A and VGM Score of B.

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research