CTS - Looking closer at the EMS Segment - Analyst Blog

Ken Nagy, CFA

Looking closer at the EMS Segment

CTS designs, manufactures, assembles, and sells a broad line of electronic components and sensors. The firm also provides electronics manufacturing services primarily to original equipment manufacturers (OEMs), for the automotive, computer, communications, medical, industrial, and defense and aerospace markets. The firm was established in 1896 as a provider of high-quality telephone products and was incorporated as an Indiana corporation in February 1929. Along the way CTS had a hand in numerous technologies from the radio to the space shuttle Columbia.

CTS has two reportable segments: Electronics Manufacturing Services (EMS) and Components and Sensors.

CTS is the perfect storm of diversified, profitable and growing. Against a back drop of such macro trends in fuel efficiency, green initiatives, and data traffic for smart phones and social networking the firm is launching new products, expanding into new areas, and increasing market share.

EMS: Niche markets, Diversification and Alternative Energy  
The slower growing EMS segment has been exceptionally diversified since 2004 into medical and industrial where margins are higher and cost to enter the market is significant. This will likely produce higher margins and more reliable revenue in what is CTS' largest segment.
 



We feel the winners in the EMS space will benefit from continued OEM outsourcing, and benefit from new opportunities after the recession of 2008-2009. EMS Firms with strong footholds in Medical, Defense, and Industrial will outperform firms with more concentration in computer and communications.  CTS aims to find customers with complex needs in niche sectors such as defense, aerospace, medical and industrial. This ensures less competition and higher margins.  

2011 sales expected to grow approximately10%+ year-over-year with ignificant improvement in margins anticipated.

For a copy of the full research report, please email scr@zacks.com with CTS as the subject.