Plexus (PLXS) Q3 Earnings: Is A Surprise In The Cards?

Plexus Corp (NASDAQ:PLXS) is set to report third quarter fiscal 2016 results on Jul 20, after the market closes. Last quarter, the company reported a positive earnings surprise of 5.77%. Over the past four quarters, the company has posted an average positive earnings surprise of 3.52%. Let’s see how things are shaping up for this announcement.

Factors to Consider

We belive that a strong number of program wins is a big positive for the company. In the last reported quarter, Plexus won 38 programs worth approximately $174 million in its Manufacturing Solutions group. As an engineering-focused EMS player, it is well positioned to benefit from increasing outsourcing trend among health care, industrial and defense/aerospace OEMs.

Plexus has also been growing its manufacturing footprint in low-cost regions like Mexico, Malaysia, China and Romania. With the construction of the new facility in Guadalajara, Mexico now complete, we believe the company’s shift into low cost regions as well as consolidation of manufacturing facilities will boost profitability. The company has also initiated restructuring of a couple of its facilities (in Fremont and Livingston) with regard to lower margin programs in networking/communications and industrial/commercial sectors. Plexus expects annual cost savings of about $8 million to $9 million upon completion of these restructuring initiatives. Plus, robust shareholder returns policy is also a big positive.

However, macroeconomic headwinds as well as softening end-market demand continue to remain big worries for Plexus. The company’s significant exposure to the slowing Networking and Communications industry also remains an added concern.

For the third quarter of fiscal 2016, revenues are projected in the range of $640 million - $670 million. Non GAAP earnings are projected within 73 cents to 81 cents per share. Non GAAP operating margin is expected to be 4.7% to 5%.

PLEXUS CORP Price and EPS Surprise

Earnings Whispers

Our proven model does not conclusively show that Plexus is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Plexus has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 76 cents.

Zacks Rank: Though Plexus’ Zacks Rank #3 (Hold) increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

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

Stocks to Consider

Here are some stocks worth considering that, as per our model, have the right combination of elements to post an earnings beat this quarter:

QUALCOMM Incorporated (NASDAQ:QCOM) with Earnings ESP of +3.61% and a Zacks Rank #2.

Intel Corporation (NASDAQ:INTC) with Earnings ESP of +3.77% and a Zacks Rank #2

Amazon.com, Inc. (NASDAQ:AMZN) with Earnings ESP of +37.72% and a Zacks Rank #3