Optimistic on Plexus Potential

Plexus Corp. (PLXS - Analyst Report) is set to announce third-quarter financial results for the period ended July 4, 2009 on July 29. Senior management will host a live webcast and conference call to review the results on July 30.

Plexus had reaffirmed its third quarter of fiscal 2009 guidance at its Analyst Day on June 11. For the third quarter of 2009, the company expects revenue in the range of $355.0 million to $385.0 million and diluted EPS in the range of $0.18 to $0.25. EPS guidance excludes restructuring charges but includes four cents of stock-based compensation expense.

Revenue for the third quarter shows a sequential decline reflecting significant softness in customers' end-markets, and difficult overall economic conditions. Plexus sees some stabilization with its legacy customer programs, and recent program wins.

For the 3Q, we expect Plexus to deliver $382.0 million in revenue and $0.25 in diluted EPS, which is at the high end of the company's guidance. At the Analyst Day, Plexus also reiterated its long-term target model of 15% to 18% revenue growth and 20-10-5 financial model (20% ROIC target, 10% gross margin target, and 5% operating margin target).

Leveraging its strong balance sheet, Plexus expects good growth opportunities, and is targeting to increase revenue from the current $1.8 billion in fiscal 2008 to $3.0 billion by fiscal 2013.

We believe that Plexus is among the best positioned in the industry and is poised to grow with a strong pipeline and new customer wins in 2009 and beyond. Plexus anticipates that its traditional EMS market will grow at a CAGR of 15.0% by fiscal 2012.

Our long-term outlook on Plexus remains intact. We believe that over the long term, Plexus will be in the top tier of the EMS universe with the highest gross margin among its EMS peer group and above-industry growth rates.

We expect the year 2009 to be a difficult year for Plexus, although it is expected to fare better than most of its peers such as Flextronics International (FLEX - Snapshot Report), Jabil Circuit (JBL - Analyst Report), Benchmark Electronics (BHE - Analyst Report), and Sanmina-SCI (SANM - Analyst Report). Plexus is currently trading at N4Q P/E multiple of 14.3x, a premium to the industry mean and median.

We expect the company to continue trading at a premium to its peer group. We maintain our Buy rating on Plexus shares with a six-month price target of $25.00.