(By Balaseshan) Deutsche Bank analyst Sherri Scribner downgraded the rating of Plexus Corp. (NASDAQ: PLXS) to "hold" from "buy" and lowered the price target to $27 from $37, due to a lack of near-term catalysts.
PLXS reported a mixed 4Q, but guidance was significantly worse than expected on broad-based demand weakness. With networking unlikely to improve in the near term, and Coke business likely to be subdued, Scribner no longer sees positive catalysts for the shares and is downgrading the rating.
Longer term, the analyst continues to view PLXS as a well-run, high-margin and high-growth EMS company, but believes demand weakness in end markets will keep the shares in a near-term narrow range.
The company's 4Q results were mixed at revenue of $595 million and EPS of $0.66 versus Street expectations of $604 million and $0.63. Sales fell 2% sequentially on lower-than-expected results in networking where PLXS is seeing forecast erosion and escalating pricing pressure. Top customer Juniper Networks Inc.'s (NYSE: JNPR) sales were down 17% sequentially.
Operating margins were 4.6%, up 10 basis points sequentially, but management expects operating margins to decline in 1Q 2013 on lower volumes and pricing pressure. 1Q 2013 guidance was for sales of $550-$580 million (down 5% sequentially at mid-point), and EPS of $0.50-$0.55, well below the Street at $618 million and $0.65.
Scribner said PLXS is seeing weakness across the board in its core businesses, and indicated it expects declines going forward, with any growth being driven by new programs. Comments about pricing pressure in networking also raise concerns, as this represents roughly 40% of PLXS's revenue.
The analyst has been bullish on an improvement in networking, the ramp of the Coke business, and easier comparisons, but in this tough economic environment she does not expect these to be catalysts for PLXS in fiscal 2013. She now expects relatively flat sales in fiscal 2013, with EPS growth coming from reduced operating expenses and buybacks.
PLXS is trading down 0.23% at $26.26 on Friday.