Plexus (PLXS) Rides On Program Wins, Rising Investments Hurt

On Jan 22, we issued an updated research report on Neenah, WI.-based Plexus Corp. (NASDAQ:PLXS) , a leading provider of electronic contract manufacturing services to original equipment manufacturers (OEMs).

Plexus recently reported first-quarter fiscal 2018 results. Revenues improved on a year-over-year basis but earnings declined. Both the top and the bottom line missed the Zacks Consensus Estimate.

The company has beaten the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive surprise of 2.38%.

The Zacks Consensus Estimate for Plexus has moved downward in the past seven days. Earnings estimates for the second quarter decreased 10.8% to 74 cents. For 2018, the Zacks Consensus Estimate moved down 4.7% to $3.25 over the same time frame.

Notably, its shares have gained 13% in the past year, slightly underperforming the industry's 14.8% rally.

Key Factors

Plexus is gaining from a significant number of program wins. In the first quarter of fiscal 2018, Plexus won 44 new manufacturing programs worth approximately $200 million. It added over $794 million in revenues in the trailing four quarters from new wins.

The healthcare segment was driven by two large customer wins in the last quarter. Strength in semiconductor capital equipment space is also boosting the industrial segment. We believe new program wins, together with global expansion, will drive growth over the long term.

However, Plexus’s dependence on a few large customers for a major part of its revenues exposes the company to customer concentration risks. The company’s recent loss of one of its key networking customers impacted results of its Communication segment.

Weakness in the communication segment is a big concern, given that approximately 19% of its revenues in fiscal 2017 came from this sector. Besides, softness in the security business is adversely impacting the Aerospace/Defense sector.

Given the competitive nature of the industry, the loss of any one of its key customers, or individual projects with these customers, would severely impact results, going forward.

Increasing investment for new programs remains a drag on profitability. Operating margin is expected to remain under pressure in the near term.

Zacks Rank

Plexus has a Zacks Rank #3 (Hold).

Broadcom Limited (NASDAQ:AVGO) , The Trade Desk (NASDAQ:TTD) and Micron Technology (NASDAQ:MU) are some better-ranked stocks in the broader technology sector. All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Broadcom, The Trade Desk and Micron Technology is estimated to be 13.8%, 25% and 10%, respectively.

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