New Programs In Healthcare, Aerospace, And Industrial Sectors Will Drive Future Opportunities

Key Takeaways

• Revenue growth is driven by program ramps and market share gains in key sectors like Healthcare and Industrial.
  
• Operational efficiencies and capital improvements aim to enhance net margins and support long-term growth.
  
• Demand degradation, cost pressures, and geopolitical risks could lead to revenue instability, margin compression, and unpredictable earnings for Plexus.

Catalysts

Provides electronic manufacturing services in the United States and internationally.

• New program ramps and share gains in market sectors like Healthcare/Life Sciences, Aerospace and Defense, and Industrial are expected to drive revenue growth through fiscal 2025.
  
• The company aims for fiscal 2025 free cash flow of up to $100 million, which will be utilized for debt reduction and share repurchase, potentially boosting future earnings.
  
• Investment in tools, technology, and capacity is expected to enhance operational efficiencies and maintain strong operating margins, positively impacting net margins.
  
• Significant wins in manufacturing programs worth $212 million annually highlight growth potential, which is likely to increase revenue as these programs ramp into production.
  
• A focus on improving working capital efficiency and ongoing operational excellence initiatives can enhance net margins and drive overall growth.

Plexus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plexus's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 5.0% in 3 years time.
• Analysts expect earnings to reach $244.5 million (and earnings per share of $7.9) by about January 2028, up from $119.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, down from 32.7x today. This future PE is lower than the current PE for the US Electronic industry at 25.5x.
• Analysts expect the number of shares outstanding to grow by 4.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

Plexus Future Earnings Per Share Growth

Risks

• Demand degradation in some customer sectors signals potential revenue instability, with negative forecast adjustments in the Aerospace and Defense market due to commercial aerospace production challenges.
  
• Seasonal cost pressures and a slightly lower guidance for gross margin in the upcoming quarter, combined with non-operational expense expectations, may compress net margins and earnings.
  
• The potential softness and demand uncertainty in broader global industrial markets and semi-cap industry volatility could lead to unpredictable future revenue streams.
  
• Tariff impacts and geopolitical policy changes could introduce unforeseen costs and market access issues, risking operating margins and potentially affecting earnings projections.
  
• Investment in new capacity and increased capital expenditures for fiscal 2025, while strategically important, may lead to higher immediate expenses that could dampen near-term net earnings.

Valuation

• The analysts have a consensus price target of $161.75 for Plexus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $172.0, and the most bearish reporting a price target of just $140.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.9 billion, earnings will come to $244.5 million, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $144.53, the analyst's price target of $161.75 is 10.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.