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Electronic Manufacturing Services provider Plexus Corp (PLXS - Analyst Report) is scheduled to announce its fiscal third quarter 2012 results after the closing bell on July 18, 2012. In the run up to the earnings release, we have noticed some analysts revising their estimates downward.

However, we note that Plexus has outperformed the Zacks Consensus Estimate in the preceding four quarters by a positive 5.34%. We expect this trend to continue in the current quarter.

Previous Quarter Highlights

Plexus’s top line inched down 1% in the second quarter on a year-over-year basis. Weaker-than-expected sales from its Networking/Communications segment and Medical segment, which more than offset the robust performances from its Industrial/Commercial and Defense/ Security/Aerospace segments, were responsible for the year-on-year decline.

However, Plexus’s revenue of $573.5 million was within management’s guided range of $550.0 million to $580.0 million, and also surpassed the Zacks Consensus Estimate of $566.0 million.

The company’s bottom line shrunk 5.0% on a year-over-year basis to 56 cents, primarily due to higher interest expense and tax rate in the quarter. However, the reported earnings surpassed the Zacks Consensus Estimate by a couple of cents and were within management’s guided range of 51 cents to 58 cents per share.

For further details please read: Plexus Tops Estimates in 2Q

Estimate Revision Trend

In the last 30 days, two out of the eight analysts covering the stock revised their estimates downward, with no upward revisions. However, the Zacks Consensus Estimate for the third quarter of 2012 stayed at 63 cents, which is at the mid-point of management’s guided range of 60 cents and 66 cents per share.

For the third quarter, the Zacks Consensus revenue estimate is $607.0 million, which is also within management’s guidance range of $590.0 million to $620.0 million.

Concerns in the network and communications segment of the company, which is likely to be affected by Juniper Networks Inc.’s (JNPR - Analyst Report) dismal performance, keep the analysts cautious. Approximately 40% of Plexus’ communications revenue comes from Juniper. However, analysts expect other segments like the Industrial, Medical, and Aerospace to positively impact the top line on the back of new program wins.

The company’s expansionary initiatives across Romania, Scotland, Mexico, Malaysia and China are expected to affect the operating cash flow  in the short run. However, expanding into the above-mentioned low-cost regions would be a positive for the company in the longer run.

Recommendation

We believe that stabilizing end markets, new business opportunities, particularly in the industrial/commercial and medical sector and global expansion will drive growth over the long term. We also believe that the gradual improvement in the U.S. market will boost Plexus’ top line going forward. However, intense competition, continued component challenges and supply chain constraints remain major concerns for Plexus over the long term.

Thus, we have Neutral recommendation on Plexus over the long term (6-12 months). Currently, Plexus has a Zacks #3 Rank, which translates into a short-term Hold rating.

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