Can Plexus (PLXS) Keep The Earnings Streak Alive In Q2?

Plexus Corp. (NASDAQ:PLXS) is set to report second-quarter fiscal 2017 results on Apr 19, after the market closes. The company reported a positive earnings surprise of 7.89% in the last quarter. It also delivered an average positive earnings surprise of 1.33% over the trailing four quarters. Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that Plexus is likely to beat earnings because it has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Plexus currently has an Earnings ESP of +1.32%. This is because the Most Accurate estimate is 77 cents while the Zacks Consensus Estimate is pegged at 76 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Plexus has a Zacks Rank #3. The combination of Plexus’ Zacks Rank #3 and Earnings ESP of +1.32% makes us confident in looking for an earnings beat this quarter.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated ) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

We believe that a strong number of program wins is a big positive for the company. In the first quarter of fiscal 2017, Plexus won 51 new manufacturing programs worth approximately $217 million and added over $785 million in revenues in the trailing four quarters due to new wins. For the second quarter, management stated that revenues in the industrial & commercial sector will be down in mid single digits range due to continued delays in orders from one customer. From third quarter, things are likely to improve per management. Plexus is also seeing strength in its health care, industrial, commercial and defense/aerospace sectors.

Furthermore, the consolidation of the company’s production facilities in low-cost areas is expected to boost margins, going forward. A robust shareholder return policy also continues to be a big positive.

However, macroeconomic headwinds as well as softening end-market demand remain big worries for Plexus. Although Plexus is working toward diversifying its revenue stream across different industries, approximately 23.4% of its revenues in fiscal 2016 came from the Networking sector. In the last reported quarter, the share of Networking revenues was down to 20% of total revenue. Despite the company’s ongoing efforts to disengage from a few programs in these sectors, we believe these will hurt top-line growth in the near term at least.

For the second quarter of fiscal 2017, revenues are projected in a range of $620 million–$650 million. GAAP earnings are projected within 71 cents–79 cents per share. Free cash flow is expected to be in the range of break-even to $20 million for the second quarter. For Healthcare/Life Sciences segment, management expects revenues to be flat sequentially as recovery is pacing following Typhoon Xiamen. Revenues will be down in mid single digits, similar to Communication segment revenues. However, new program ramps will aid Defense/Security/Aerospace segment revenues, which are expected to be up in mid teens.

Other Stocks to Consider

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Seagate Technology plc (NASDAQ:STX) has an Earnings ESP of +3.77% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

TE Connectivity Ltd. (NYSE:TEL) has an Earnings ESP of +0.94% and a Zacks Rank #2.

First Solar, Inc. (NASDAQ:FSLR) has an Earnings ESP of +30.77% and a Zacks Rank #3.

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