Bear Of The Day: IEC Electronics

Jul.26.13 | About: IEC Electronics (IEC)

IEC Electronics Corporation's (NYSEMKT:IEC) weak results and a cloudy earnings outlook have led to downward estimates revisions, sending this electronics company to a Zacks Rank No. 5 (Strong Sell).

About the Company

IEC Electronics is a provider of electronic manufacturing services to technology companies in the military and aerospace, medical, industrial, and communications sectors. The company primarily manufactures complex circuit cards, system level assemblies, custom cable and wire harness assemblies, and precision sheet metal products.

Restatement of Accounts

On May 1, 2013, the company shocked its investors by announcing that it will restate its results for the fiscal year ended Sept. 30, 2012, and quarterly results for that year as well for the quarter ended Dec. 28, 2012. The restatement was reportedly required due to an accounting error that resulted in an aggregate overstatement of gross profits by approximately $2.2 million.

Disappointing Results

On May 20, 2013, IEC announced preliminary estimated results for the quarter ended March 29, 2013, and said that it anticipates completing the process of restatement and filing of its second quarter 10-Q within 45 days. Thereafter, on July 3, 2012, the company filed its restated financial statement and the quarterly results for Q2 with the SEC.

The second quarter resulted in a loss of $0.12 per share, substantially worse than the Zacks consensus estimate of earnings of $0.20 per share. In fact, the company has delivered negative earnings surprises in three out of last four quarters, with an average quarterly surprise of 59.1%.

NYSE Delisting Notice and Regaining Compliance

On May 20, the company received a delisting notice from the NYSE due to its failure to timely file its quarterly report with the SEC. However, the issue was later resolved and the company regained compliance with the listing requirements on July 9, 2013.

Investor Class Action Lawsuit

A class action lawsuit has been filed on behalf of all purchasers of IEC securities between Feb. 8, 2013, and May 21, 2013. The complaint alleges that the company issued false and/or misleading financial statements during this period. Several law firms are currently investigating the company.

Downwards Revisions

Due to disappointing results and lack of earnings visibility, quarterly and annual estimates have been revised sharply downward in the past few weeks. Zacks consensus estimates for the current quarter and year are now $0.11 and $0.23 per share, respectively, down from $0.20 and $0.60 per share, respectively, 30 days ago.

The Bottom Line

IEC is currently a Zacks Rank No. 5 (Strong Sell) stock and has a longer-term recommendation of Underperform. Furthermore, given that the company is currently stuck in an accounting and legal mess, it is best for investors to avoid this stock for the time being.

Better Play?

Investors looking for exposure to the industry (electronics-miscellaneous components) could look at Nidec Corp. (NYSE:NJ), which is a Zacks rank No. 1 (Buy) stock, with an Outperform rating.

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