Upgrades Perk Up Plexus

Analysts' upgrades to outperform send shares up more than 18%.
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Plexus (PLXS) - Get Report shares shot up Thursday after two analysts raised their ratings on the electronics manufacturing services company.

Analysts said the stock has come under pressure because of its

weak outlook and a decline in the percentage of overall revenue from its largest customer,

Juniper Networks

(JNPR) - Get Report

, and that it is now a nice buying opportunity.

Investors were paying attention. Shares of the Neenah, Wis.-based company skyrocketed 18.7%, adding $4.07, to $25.83, changing hands at more than twice the usual volume.

"We are buyers on weakness, and are upgrading PLXS to outperform given our view that the Juniper decline is temporary, and that Plexus has a good overall pipeline, strong engineering capability and stable margins," Baird analyst Reik Read wrote in a Thursday note. His firm has a noninvestment-banking relationship with the company.

Read believes that Juniper's low-end business is moving away from Plexus. At the same time, Plexus is gaining Juniper's higher-end projects from

Celestica

(CLS) - Get Report

.

Revenue from Juniper was down for the third consecutive quarter to 17% from 19% sequentially.

Read raised his price target to $28, and bumped up his EPS estimate for 2007 to $1.47 from $1.41. For 2008, Read forecasts EPS of $1.72.

Bear Stearns analyst Kevin Kessel also raised his rating to outperform, noting Plexus' solid relationship and its improving mix of business with Juniper, which could help margins.

"Going forward, we believe that despite competitive pressures and a delay in the higher margin defense program, gross margins will stay at around the 10% level," he said.

The defense sector declined 21.5% sequentially, but Kessel said Plexus customer

General Dynamics

(GD) - Get Report

will likely receive follow-up orders from the military for counter-IED (improvised explosive devices, such as roadside bombs) orders, which could benefit Plexus in early 2007.

In a first for one of the EMS companies he covers, Kessel said that inventory declined 3.6%, or $8.5 million, sequentially to $224.3 million.

He set a new price target of $28. Kessel's firm seeks to do business with companies covered in its research reports.

For its first quarter, Plexus forecast sales between $385 million and $395 million, and EPS in the range of 31 cents to 35 cents. Analysts had expected more, pegging the company for 43 cents a share on sales of $406.9 million.

CEO Dean Foate said in a Wednesday release that annual revenue will rise between 15% and 18% in fiscal 2007, ranging from $1.68 billion to $1.72 billion. Analysts are looking for $1.69 billion in sales.

"We continue to believe that OEMs are increasingly seeking EMS players that offer the value-added engineering provided by companies like Plexus," Baird's Read said.