Plexus Corp. PLXS is set to report first quarter fiscal 2016 results on Jan 20, after the market closes. Last quarter, the company reported a positive earnings surprise of 1.47%. Over the past four quarters, the company has posted an average positive earnings surprise of 0.72%. Let’s see how things are shaping up for this announcement.
Factors to Consider
We believe that a strong number of program wins is a big positive for the company. In the last reported quarter, Plexus won 25 programs in its Manufacturing Solutions group. Plexus anticipates these wins to generate approximately $209 million in annualized revenues once production commences. As an engineering-focused EMS player, it is well positioned to benefit from the increasing outsourcing trend among health care, industrial and defense/aerospace OEMs.
Plus, Plexus has also been growing its manufacturing footprint in low-cost regions, like Mexico, Malaysia, China and Romania. With the construction of the new facility in Guadalajara, Mexico now complete, we believe that the company’s shift into low cost regions as well as consolidation of manufacturing facilities will boost profitability.
However, macroeconomic headwinds as well as softening end-market demand contiue to remain big worries for Plexus. The company’s significant exposure (35% of revenues) to the slowing Networking and Communications industry also remains an added concern.
For the first quarter of fiscal 2016, revenues are projected in the range of $600 million - $625 million. Earnings are projected within 41 cents to 48 cents per share.
Earnings Whispers
Our proven model does not conclusively show that Plexus is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Plexus has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 44 cents.
Zacks Rank: Though Plexus’ Zacks Rank #3 (Hold) increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
MicroStrategy Inc. MSTR with Earnings ESP of +3.46% and a Zacks Rank #1 (Strong Buy)
Harman International Industries, Incorporated HAR with Earnings ESP of +1.74% and a Zacks Rank #2 (Buy).
NetSuite Inc. N with Earnings ESP of +8.57% and a Zacks Rank #3 (Hold)
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Click to get this free report HARMAN INTL IND (HAR): Free Stock Analysis Report NETSUITE INC (N): Free Stock Analysis Report MICROSTRATEGY (MSTR): Free Stock Analysis Report PLEXUS CORP (PLXS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research