Plexus Grows on Expansion and Contract-Wins
The company reported strong first-quarter 2015 results with both the top line and the bottom line surpassing the respective Zacks Consensus Estimate. The company issued upbeat second-quarter guidance.
New program wins across key sectors and global expansion will drive growth over the long term. The disengagement from Juniper will improve the product mix. Additionally, the consolidation of the company’s production facilities in low-cost areas is expected to boost margins. However, a mature electronic manufacturing services market, lack of revenue diversification and intense competition are the headwinds.
We believe that a significant number of program wins will drive the stock, going forward. In 2014, Plexus won new programs worth approximately $816 million in the manufacturing solutions business. In the reported quarter, the company secured 32 program wins, which it expects will generate annualized revenues of $190 million. As an engineering-focused EMS player, it is well positioned to benefit from the increasing outsourcing trend among healthcare, industrial and defense/aerospace OEMs. Given its exposure to high-growth segments and continuing improvements in healthcare, industrial, commercial and defense/aerospace sectors, we believe the company will outgrow peers in the EMS group over the long term.
Plexus continues to suffer from broad-based macroeconomic headwinds as well as softening end-market demand. The company’s significant exposure to the slowing Networking and Communications industry remains a concern. Although Plexus is working toward diversifying its revenue stream across different industries, approximately 35% of its revenues still come from the Networking sector.