Plexus Gets Praise

The stock continues its run higher after a solid earnings report.
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Updated from 12:47 p.m. PDT

Investors went wild for

Plexus

(PLXS) - Get Report

on Friday after the company posted second-quarter earnings far above consensus and provided bullish guidance for the next three months.

The stock charged up more than 10% on Friday, changing hands at more than four times its average volume. Plexus closed the day up $4.29 to $43.56. It fell 75 cents after hours to $42.81.

"Plexus delivered another astonishing quarter," wrote Carter Shoop, an analyst with Deutsche Bank Securities, in a Friday note.

"Plexus' quarter over quarter operating profit contribution the past three quarters has been about 40% on average, which is unheard of in the EMS industry (industry average operating margin is 3%)," Shoop added, upgrading his rating on Plexus to hold and setting a new price target of $43.

Richard Stice, an equity analyst with Standard & Poor's, also boosted his rating of the stock to hold from sell, based on favorable execution by the company, and raised his 12-month target price to $46 from $30. Standard & Poor's does not have a financial relationship with Plexus.

Plexus said late Thursday that it made $18.5 million, or 40 cents a share, reversing its $4.5 million, or 10 cents a share, loss in the parallel quarter a year ago.

Excluding items, Plexus earned $18.5 million, or 40 cents a share, on the bottom line, up from the $5.3 million, or 12 cents a share, during the same period a year ago. The average among analysts was an EPS of 34 cents.

Sales totaled $337.9 million, compared with $305.5 million a year ago, shy of analysts' consensus of $340.9 million.

For the third quarter, the company forecast a non-GAAP EPS between 50 cents and 55 cents (including 2 cents for stock-based compensation expenses), with revenue set between $390 million to $405 million.

Analysts set a significantly lower target with an EPS of 38 cents on sales of $367.4 million.

For the full year, the company said it would increase its revenue by 20%, above earlier projections of 15% to 18%.

A new defense customer will boost sales in the third quarter, in addition to growing business among current customers in its wireline division, Plexus said.

"The military win is expected to ramp from ~$0 to a 10% customer quarter over quarter which would be the largest/ fastest ramp we have seen in five years of covering the EMS industry," Shoop wrote. Deutsche Bank Securities does and seeks to do business with the companies it covers.

"Looking to the third quarter, we expect growth to continue," Plexus CEO Dean Foate said on a conference call with analysts Friday. "Our defense, security and aerospace sector was up this quarter as expected, reflecting six consecutive quarters of growth.

"Looking to the third quarter, we currently expect exceptionally strong performance as we ramp to full production programs for our confidential customer in this increasing important sector," Foate said.

The company said it is in negotiations to expand its facility in China. It is also looking to add a third manufacturing facility in Malaysia.

Still, Shoop noted that "we remain puzzled by the recent margin performance and believe it is unsustainable."

Last month, analysts expressed concerns that the stock was superficially valued. Indeed, Shoop also noted on Friday that the "shares are rich." But that has done little to discourage investors, who have

seen the stock nearly double since the beginning of the year, as of Thursday's close.

"Barring an unforeseen significant negative event, the second half of our fiscal year should be strong as well," Foate said.