Record Program Wins And Operational Efficiencies Will Strengthen Future Prospects In Aerospace And Healthcare Sectors

Key Takeaways

• Anticipated revenue growth in aerospace, defense, and healthcare sectors, with record program wins driving revenue streams and positive impacts.
  
• Operational efficiency improvements and sustainable practices enhance net margins, free cash flow supports share buybacks, debt reduction, and EPS growth.
  
• Weak demand and inventory issues, coupled with uncertainty in industrial and aerospace sectors, pose risks to Plexus' revenue growth and net earnings.

Catalysts

Provides electronic manufacturing services in the United States and internationally.

• Plexus is set to benefit from strong anticipated revenue growth in the aerospace and defense market sector, driven by ongoing share gains and new program ramps, which are expected to positively impact revenue.
  
• The Healthcare/Life Sciences sector is poised for exceptional revenue growth over the long-term due to record program wins and new outsourcing work, enhancing revenue streams.
  
• The company’s strategic initiatives to increase operating margin and drive efficiency have led to achieving a 6-plus percent non-GAAP operating margin a year earlier than expected, indicating the potential for improved net margins.
  
• Robust free cash flow generation is expected to support further share repurchase programs and debt reduction, which can enhance EPS through improved capital allocation.
  
• The company’s focus on sustainable business practices and operational efficiencies, including reductions in waste and emissions, align with cost savings and can further support net margins.

Plexus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Plexus's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 4.9% in 3 years time.
• Analysts expect earnings to reach $242.0 million (and earnings per share of $8.2) by about December 2027, up from $111.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.6x on those 2027 earnings, down from 39.9x today. This future PE is lower than the current PE for the US Electronic industry at 26.0x.
• Analysts expect the number of shares outstanding to grow by 2.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.23%, as per the Simply Wall St company report.

Plexus Future Earnings Per Share Growth

Risks

• Ongoing demand weakness in the EMEA industrial market sector may impede revenue growth and overall financial performance in that region.
  
• Continued inventory corrections, especially in healthcare, could suppress revenue growth and affect net margins if these dynamics persist longer than expected.
  
• The anticipated mid-single-digit revenue decline for the industrial sector due to program volatility with two customers indicates potential risks in achieving sustained revenue growth.
  
• Possible adverse effects from unresolved contracts in the aerospace sector, such as the Boeing strike, could impact revenue projections and net margins if not resolved soon.
  
• Increased non-operating expenses, particularly from higher foreign exchange losses, may negatively impact net earnings if these trends continue.

Valuation

• The analysts have a consensus price target of $153.2 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 $165.0, and the most bearish reporting a price target of just $136.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $5.0 billion, earnings will come to $242.0 million, and it would be trading on a PE ratio of 22.6x, assuming you use a discount rate of 7.2%.
• Given the current share price of $164.5, the analyst's price target of $153.2 is 7.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.