J.P. Morgan: Flex raises full-year revenue and margin guidance as CPI growth accelerates; acquisitions account for roughly half the revenue increase

Where did the latest quarter beat expectations?

In the second quarter of fiscal 2027, which ended at the end of September, Flex reported revenue of 8.491 billion dollars, up 25% year over year and above JPMorgan’s estimate of 8.115 billion dollars and the market consensus of 8.169 billion dollars. CPI, ITS and RMS revenue rose 54%, 22% and 9% year over year, respectively.
Operating margin for the quarter was 7.1%, above the bank’s and market consensus estimate of 6.8%; adjusted earnings per share were 1.18 dollars, also above the market consensus of 1.06 dollars. Better-than-expected revenue and expense control together supported earnings.
Cash flow performance was affected by separation costs: free cash flow conversion for the quarter was approximately 59%, including 61 million dollars in one-time costs related to the CPI separation.

The company raised its revenue guidance for the fiscal year ending in March 2027 from 33.7 billion–35.2 billion dollars to 34.9 billion–35.9 billion dollars. The midpoint increased by 950 million dollars, about half of which comes from the EPC acquisition.
Full-year CPI revenue growth guidance was raised from 65%–75% year over year to 75%–85%, with acquisitions completed during the year contributing approximately 10 percentage points. ITS growth guidance was also raised, while RMS guidance was largely unchanged.
ITS benefited from a better-than-expected first half and continued strength in communications, particularly advanced networking related to AI data center construction; weaker demand in the consumer-related Lifestyle business offset some of the growth.

Full-year CPI operating margin guidance rose to 11.5%–11.7%, implying year-over-year expansion of approximately 240 basis points, versus approximately 100 basis points under the previous guidance. Management attributed this to a more favorable product mix, pricing, volume-related economies of scale, benefits from the prior year’s investments and the contribution from EPC.
Improvement in CPI led the company to raise consolidated operating margin guidance from 7.0%–7.2% to 7.6%–7.8%. JPMorgan estimates EPC’s contribution to consolidated margin at approximately 10 basis points.
Margin improvement matters for profitability: JPMorgan noted that profitability would be pressured if segment margins fell or the business mix shifted toward lower-margin businesses over the long term.

Management expects CPI’s stronger-than-expected underlying growth momentum to continue into fiscal 2028 even excluding EPC; approximately two-thirds of fiscal 2027 capital expenditure is being used to secure capacity for the next fiscal year.
The company maintained its fiscal 2027 capital expenditure guidance at 1.5 billion–1.6 billion dollars and its free cash flow conversion guidance at approximately 40%, including one-time costs related to the CPI separation.
JPMorgan raised its adjusted earnings-per-share forecasts for fiscal 2027 and 2028 from 4.65 dollars and 7.15 dollars to 5.00 dollars and 7.45 dollars, respectively, while maintaining its overweight rating and December 2027 price target of 160 dollars. The target is based on its calendar 2028 earnings-per-share forecast and a price-to-earnings multiple of 17.