Can Flex Offset Automotive Headwinds in Its Reliability Segment?

Flex Ltd. FLEX is witnessing strong business performance, largely driven by surging demand across its data center and high-value, technology-driven businesses. Even as momentum builds across other sectors, the question arises whether Flex can offset persistent auto-sector weakness within its Reliability Solutions segment.

In the last reported quarter, revenues from Reliability Solutions Group (which encompasses Health Solutions, Automotive and Industrial businesses) grew 3% to $3 billion, accounting for 45% of net sales. This was driven by strong Power growth and moderate gains in Health Solutions and Core Industrial, partially offset by ongoing weakness in the automotive sector.

Management acknowledged that automotive remains a pressure point but is gradually stabilizing. It highlighted compute deals with new logos in software-defined vehicles in the fiscal first half.

Flex Ltd. Price, Consensus and EPS Surprise

Flex Ltd. price-consensus-eps-surprise-chart | Flex Ltd. Quote

The adjusted operating margins of the division was 6.5%, up 105 bps from the prior-year level. This margin strength, driven mainly by a favorable mix (from the Power business), cost management and disciplined execution, demonstrates that the segment can flex around cyclical weakness in auto without affecting overall profitability.

Looking ahead, Flex expects Reliability Solutions revenues to grow in the low- to mid-single digits, supported by strong power demand and accelerating growth in medical devices in fiscal 2026. However, a soft but stabilizing environment in renewables and auto will remain a concern, added management.

Whether Flex can continue offsetting this pressure depends largely on the durability of data center demand. With revenues expected to rise at least 35% this year, the data center segment is delivering not just rapid expansion but also significant mix benefits. Flex’s diversification across mission-critical industrial and healthcare verticals also reduces reliance on any single end market, including automotive.

Let’s Look at Challenges Faced by FLEX’s Rivals

Jabil JBL is positioned to gain from AI-driven data center expansion, higher demand for advanced cooling solutions and semiconductor capital equipment. Long-term tailwinds in health care, renewables and energy infrastructure and vehicle-agnostic automotive platforms support sustained growth.

At the same time, Jabil faces meaningful challenges. The Connected Living & Digital Commerce segment is being impacted by weakness in consumer-driven products. Automotive demand remains volatile amid regulatory shifts, tariffs and trade pressures (mainly around Chinese EVs) and a slower EV ramp. Renewables face policy uncertainty, tariffs and higher interest rates that impact near-term demand.

The growing proliferation of AI-based applications and generative AI tools across industries presents a solid growth opportunity for Celestica CLS. AI investments are driving demand for Celestica’s enterprise-level data communications and information processing infrastructure products, such as routers, switches, data center interconnects, edge solutions, and servers and storage-related products.

Weakness in the ATS segment over the past few quarters is a concern. CLS added that its “reshaping activities” in A&D are offsetting strong base demand across the segment.  As a result, revenues are expected to be flat year over year in 2025. Customer concentration risk and macroeconomic challenges remain headwinds.

Flex Price Performance, Valuation and Estimates

Shares of FLEX have gained 19.5% in the past month compared with the Electronics - Miscellaneous Products industry’s growth of 10.1%.

FLEX trades at a forward 12-month price-to-earnings (P/E) ratio of 21.09, below the industry’s 25.53.

The Zacks Consensus Estimate for FLEX earnings for fiscal 2026 has been revised upward over the past 60 days.

FLEX currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research