On Tuesday, KeyBanc commenced coverage on Plexus (NASDAQ:PLXS), assigning a Sector Weight rating to the company's shares. The firm recognized Plexus's strengths in design capabilities and strategic market positioning, noting that these qualities set it apart from larger, more diverse competitors. Plexus's focus on markets with longer lifecycle products is seen as a key differentiator, and its approach to engineering and manufacturing is expected to sustain its status as a preferred partner among its approximately 150 customers.
KeyBanc's analysis suggests that Plexus's targeted high single-digit percentage revenue growth, margin improvements, and share repurchase strategy could lead to an approximate 12% compound annual growth rate in earnings per share from the fiscal year 2025 to 2027. Despite these positive aspects, the firm points out that Plexus's stock is trading at a premium, approximately five times higher than the average of its peers, even though its margins are in line with those of its competitors.
The firm also acknowledges potential challenges in the post-inflationary period, including the possibility of slowed margin expansion. Nevertheless, KeyBanc believes that a more disciplined electronics manufacturing services (EMS) industry and Plexus's selective portfolio strategy may result in less volatile outcomes compared to historical performance. The Sector Weight rating reflects a neutral stance on the stock, suggesting that the analyst believes Plexus's current market valuation adequately represents its prospects and risks.
In other recent news, Plexus Corp demonstrated a strong financial performance in its fiscal third quarter of 2024, reporting revenues of $961 million and free cash flow of $114 million. The company also announced a new $50 million stock buyback plan, following the conclusion of its ongoing initiative.
Benchmark, a financial advisory firm, maintained a Buy rating for Plexus Corp and raised its price target to $150 from $145. This decision comes despite the ongoing Boeing (NYSE:BA) strike, which is expected to impact Plexus' near-term revenues. However, new initiatives in the Space and Semiconductor Capital Equipment sectors are anticipated to offset this impact.
Plexus Corp also secured over $500 million in contracts in the healthcare life sciences sector over the past four quarters, contributing to a growing funnel of qualified manufacturing opportunities worth $3.6 billion. Despite slower growth in the aerospace and defense sector due to supply constraints and customer design changes, Plexus Corp anticipates a mid-single-digit revenue increase in the fiscal fourth quarter.
InvestingPro Insights
To complement KeyBanc's analysis, recent data from InvestingPro offers additional context on Plexus's financial performance and market position. The company's market capitalization stands at $3.71 billion, with a P/E ratio of 33.8, indicating that investors are willing to pay a premium for Plexus's shares, aligning with KeyBanc's observation of the stock trading at a higher multiple than its peers.
InvestingPro Tips highlight that Plexus has shown a strong return over the last year, with a 50.86% price total return. This performance is further emphasized by the stock trading near its 52-week high, currently at 97.32% of that peak. These metrics support KeyBanc's view of Plexus's premium valuation.
However, it's worth noting that Plexus suffers from weak gross profit margins, with the latest data showing a gross profit margin of 9.34% for the last twelve months as of Q3 2024. This aligns with KeyBanc's comment about Plexus's margins being in line with competitors, suggesting room for improvement.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Plexus, providing a deeper understanding of the company's financial health and market position.
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