Plexus: Earnings Preview

As an engineering-focused EMS player and a leading provider of electronic manufacturing services (EMS) to original equipment manufacturers (OEMs), we believe Plexus Corp. (PLXS) is well positioned to benefit from the increasing trend of outsourcing at the medical, industrial and defense/aerospace OEMs.

Revenue growth at Plexus has been above expectations, with a growth of 19.1% in 2008, above its target of 15.0% to 18.0%. Deriving more than 50% of its business from high-margin, high-growth markets such as defense/security/aerospace, medical and industrial, the company expects to increase revenue from the current $1.8 billion in fiscal 2008 to $3.0 billion by fiscal 2013.

Plexus provided encouraging fourth quarter of 2009 guidance and expects revenue in the range of $380.0 – $405.0 million and earnings in the range of 27 cents to 32 cents.

Looking ahead, the company expects modest sequential top-line growth in the first quarter of fiscal 2010. The company believes that relative to fiscal fourth quarter 2009 results, first half of fiscal 2010 operating margins will be pressured by mix shift, compensation-related cost increases and capacity investments that are necessary to support new program ramps.

Plexus’ third quarter results were in line with management’s guidance, with revenue exceeding the Zacks Consensus Estimate. Though sector performance was weak, we believe that Plexus is among the best positioned in the industry and is poised to grow with a strong pipeline, new customer wins and increased cost-cutting measures  beyond 2009. Over the long term, we expect the company to benefit immensely from the growing need for Wireline/Networking and Wireless infrastructure globally.

We have a Neutral rating on Plexus as we advise the stockholders to remain cautious until Plexus exhibits incremental growth opportunities through some stabilization in its legacy customer programs and stronger end-market recovery. We see a continued challenging backdrop for Plexus for the next couple of quarters. Moreover, Plexus is small compared to its peers such as Flextronics International Ltd (FLEX), Jabil Circuit (JBL), Benchmark Electronics (BHE) and Sanmina-SCI (SANM).

Plexus is set to release its fiscal 2009 fourth quarter results on Oct. 28 after market close.

Read the full analyst report on PLXS

Read the full analyst report on JBL

Read the full analyst report on FLEX

Read the full analyst report on SANM

Read the full analyst report on BHE