Benchmark Electronics, Inc.: An Innovative Tech Stock to Play the Economic Reopening

Benchmark Electronics stockBHE Stock to Benefit From Global Economic Recovery

The world is facing a microchip shortage at a time when the global economy is recovering. This has impacted the supply chains in all areas, especially the electronic manufacturing services (EMS) sector.

Back in the 1990s, as the technology sector picked up steam, we saw the rise of EMS companies that provided design and advanced manufacturing services to original equipment manufacturers (OEMs).

Decades later, the majority of EMS companies continue to operate and procure innovative manufacturing solutions. On the small-cap end, I like the prospects of Benchmark Electronics, Inc. (NYSE:BHE), a provider of EMS solutions to global OEMs.

Benchmark Electronics stock rallied from the depths of $14.06 in March 2020 to a 52-week high of $32.56 on April 6, 2021.

Advertisement

A look at the below chart shows the breakout in BHE stock from the sideways channel in November, followed by a bullish golden cross pattern.

Benchmark Electronics stock is hovering in another sideways channel just above its 50-day moving average. There appears to be a bullish double bottom pattern forming that could drive BHE stock above $32.00. The downside support is at $26.00 to $28.00 and the 200-day moving average.

Chart courtesy of StockCharts.com

Economic Recovery to Fuel Growth in Benchmark Electronics Stock

The last five years showed inconsistency from Benchmark Electronics, Inc. as the company looks to deliver steady growth.

The impact of the COVID-19 pandemic in 2020 was reflected in the 9.5% drop in revenues, but things are looking better.

Fiscal Year Revenues (Billions) Growth
2016 $2.3 N/A
2017 $2.5 6.3%
2018 $2.6 4.6%
2019 $2.3 -11.6%
2020 $2.05 -9.5%

(Source: “Benchmark Electronics Inc.” MarketWatch, last accessed April 22, 2021.)

Analysts estimate that the company will grow its revenues by 4.1% to $2.14 billion in 2021, followed by 6.9% to $2.3 billion in 2022. (Source: “Benchmark Electronics, Inc. (BHE),” Yahoo! Finance, last accessed April 22, 2021.)

Benchmark Electronics managed to produce earnings before interest, taxes, depreciation, and amortization (EBITDA) income in each of the last five years, albeit there were four years straight of contraction. Watch for a possible reversal if the company’s revenues and earnings recover.

Fiscal Year EBITDA (Millions) Growth
2016 $142.6 N/A
2017 $133.3 -6.5%
2018 $117.0 -12.2%
2019 $97.3 -16.9%
2020 $92.1 -5.4%

(Source: MarketWatch, op. cit.)

On the bottom line, Benchmark Electronics, Inc. delivered generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits in four of the last five years, but again consistency was an issue.

Fiscal Year GAAP Diluted EPS Growth
2016 $1.29 N/A
2017 -$0.64 -149.8%
2018 $0.49 176.2%
2019 $0.60 23.6%
2020 $0.38 -36.8%

(Source: MarketWatch, op. cit.)

There are reasons to be hopeful. Benchmark Electronics, Inc. is expected to increase its adjusted earnings to $1.19 per diluted share this year and $1.41 in 2022. (Source: Yahoo! Finance, op. cit.)

The company has generated positive free cash flow in each of the last five years, including a strong 40.6% bounce to $85.1 million in 2020.

Fiscal Year Free Cash Flow (Millions) Growth
2016 $242.0 N/A
2017 $95.1 -60.7%
2018 $13.9 -85.4%
2019 $60.6 336.3%
2020 $85.1 40.6%

(Source: MarketWatch, op. cit.)

The company’s balance sheet had good working capital, debt of $232.9 million, and cash of $390.8 million at the end of 2020. (Source: Yahoo! Finance, op. cit.)

The strong financial position will allow time for Benchmark Electronics, Inc. to recover out of the pandemic.

Analyst Take

Institutions are active in BHE stock. At the end of 2020, 267 institutions held a 98.7% stake. We’ve also seen buying from insiders. Over the last six months, insiders bought 139,739 shares. (Source: Yahoo! Finance, op. cit.)

Benchmark Electronics, Inc. trades at 21 times its consensus 2022 EPS estimate, which is roughly in line with the S&P 500.

But a look at the company’s revenues shows Benchmark Electronics trading at 0.48 times its consensus 2022 revenue estimate. This should provide some downside cushioning for Benchmark Electronics stock.