Sanmina Earnings: Is SANM a Buy Ahead of Q3 2025?

Sanmina Earnings: Is SANM a Buy Ahead of Q3 2025?

Sanmina Corporation (NASDAQ: SANM) has long been a polarizing name among investors, oscillating between periods of strong earnings momentum and historical revenue misses. As the company prepares to report Q3 2025 results, the question arises: Is SANM a contrarian buy at current valuations, or does its mixed track record justify caution?

Earnings Momentum: A Contrarian's Case for Growth

Sanmina's Q2 2025 results, released in April 2025, provided a compelling narrative for value investors. The company reported revenue of $1.98 billion, a 8.1% year-over-year increase, and non-GAAP EPS of $1.41, exceeding consensus estimates by 2.5%. This followed a similarly strong Q1 2025 performance, where revenue hit $2.01 billion and non-GAAP EPS of $1.44 beat expectations by 2.5%.

The improvement in earnings momentum is underscored by strong cash flow generation. In Q2, Sanmina produced $157 million in operating cash flow and $126 million in free cash flow, more than double the Q1 figures. The company also accelerated its share repurchase program, spending $84 million to buy back 1.03 million shares. These actions signal confidence in its capital structure and a commitment to rewarding shareholders—a critical factor for contrarian investors seeking undervalued growth stories.

Valuation Metrics: Undervalued or Overlooked?

Sanmina's current valuation multiples appear favorable relative to both its historical averages and industry peers. As of July 2025, the stock trades at a P/E ratio of 22.25, significantly above its 10-year average of 13.02 but below the industry average of 34.47. This suggests the market is pricing in modest growth expectations, yet the company's PEG ratio of 1.17 (based on projected non-GAAP EPS of $1.40 for Q3 2025) implies a slight overvaluation relative to earnings growth. However, when compared to peers like Jabil (P/E of 41.68) and Celestica (P/E of 48.5), Sanmina's multiples appear more attractive.

The EV/EBITDA ratio of 10.37 further strengthens the case for value. With TTM EBITDA of $480.84 million and an enterprise value of $4.99 billion, Sanmina's valuation aligns with industry benchmarks (10–12x) for capital-intensive manufacturing firms. For a company generating $126 million in free cash flow and maintaining $647 million in cash, this multiple suggests the market is discounting its liquidity and operational discipline.

Historical Misses vs. Recent Resilience

Sanmina's past performance has been a double-edged sword. From 2020 to early 2024, the company experienced repeated revenue misses, including a 2022 Q2 EPS shortfall of 10% and a 2024 Q3 revenue miss of 5%. Analyst sentiment during this period was cautious, with downgrades like “Potential Limitation For Near-Term Growth” in May 2024 reflecting skepticism. Insider selling also spiked in 2024, raising questions about internal confidence.

However, the first half of 2025 marked a reversal. Sanmina's ability to exceed expectations in both Q1 and Q2, despite a challenging macroeconomic environment, demonstrates improved operational execution. CEO Jure Sola's emphasis on regional manufacturing agility—leveraging facilities in the U.S., India, and Mexico—has mitigated supply chain risks and enhanced responsiveness to customer demand. This adaptability is critical in an industry prone to cyclical swings.

Historically, Sanmina's stock has shown a positive reaction to earnings beats. From 2022 to July 2025, the stock delivered a 60% win rate over 3 days, a 70% win rate over 10 days, and a 50% win rate over 30 days following earnings surprises. The maximum observed return was 5.24% over 59 days, highlighting the potential for modest to significant short-term price appreciation after positive earnings reports. These results suggest that Sanmina's stock tends to reward investors who act quickly on earnings surprises, though the 30-day win rate cautions that long-term momentum may vary.

Q3 2025 Guidance: A Test of Momentum

The company's guidance for Q3 2025—$1.925–2.025 billion in revenue and $1.35–1.45 in non-GAAP EPS—is a key inflection point. While the revenue range is slightly below the Q2 actuals, it reflects a cautious approach to inventory management in the automotive sector, a known headwind. The non-GAAP EPS guidance, however, is in line with Q2 performance, suggesting confidence in maintaining margins despite macroeconomic headwinds.

For contrarian investors, this guidance presents an opportunity. If Sanmina can match or exceed Q3 estimates, it could trigger a re-rating of its valuation. The company's 23% non-GAAP ROIC and $37 million in remaining share repurchase authorization (as of Q2) further bolster the case for a rebound.

Risks and Considerations

Sanmina's story is not without risks. Geopolitical uncertainties—including potential tariff changes—and sector-specific challenges (e.g., automotive inventory overhangs) could pressure margins. Additionally, the PEG ratio of 1.17 implies the stock is not a screaming bargain, and a misstep in Q3 could reignite skepticism.

However, for value investors, these risks are already priced into the stock. Sanmina's low debt-to-equity ratio of 0.12, $647 million in cash, and 10.37 EV/EBITDA offer a margin of safety. The company's strategic investments in capacity expansion—particularly in high-growth markets like cloud infrastructure and defense—position it to capitalize on secular trends.

Conclusion: A Contrarian Buy with Caution

Sanmina's recent earnings momentum and favorable valuation metrics make it an intriguing candidate for contrarian value investors. While the company's history of revenue misses and mixed analyst sentiment warrant caution, the improvement in operational execution, strong cash flow, and disciplined capital allocation suggest a turning point.

Investment Thesis:
- Bull Case: Q3 2025 results that meet or exceed guidance could catalyze a re-rating to 12–14x non-GAAP EPS, implying a $16–$18 price target.
- Bear Case: A revenue miss or margin compression could justify a pullback to 10x non-GAAP EPS (~$13).

For investors willing to stomach near-term volatility, Sanmina represents a high-conviction opportunity in a sector poised for cyclical recovery. As always, diversification and a clear stop-loss strategy are essential to mitigate risks.

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