Plexus Corp. PLXS shares have surged 53% year to date, outpacing the industry, broader tech sector and S&P 500 Composite's growth of 48.5%, 34.2% and 27.8%, respectively.

Plexus has also outperformed some of its peers like Flex Ltd FLEX and Jabil Inc JBL, which have gained 24.7% and 5.9%, respectively. However, Celestica Inc CLS has appreciated 238.3% in the same time frame.

YTD Price Performance

Image Source: Zacks Investment Research

Neenah, WI-based Plexus is a leading provider of electronic contract manufacturing services to original equipment manufacturers in a wide range of industries, including Healthcare/Life Sciences, Industrial and Aerospace/Defense market sectors.

New program ramp activities and healthy demand in the Aerospace/Defense unit are driving the stock price appreciation.

PLXS’ revenues of $1.05 billion increased 2.6% year over year and beat the Zacks Consensus Estimate by 4.3% in the last reported quarter. It came ahead of the guidance range of $960 million to $1 billion.

PLXS closed the last trading session at $165.40, near its 52-week high of $170.07. Now, investors are contemplating whether to stay invested or cash out. Let’s evaluate the various factors at play to evaluate whether PLXS stock is worth including in one’s portfolio.

Aerospace Strength: Key Growth Driver for PLXS

Momentum in the Aerospace and Defense sector is a tailwind for Plexus. In the fiscal fourth quarter, revenues from Aerospace/Defense increased 16.5% year over year to $184 million, contributing 18% to total revenues. Fiscal 2024 revenue growth of 21% exceeded the 17% growth witnessed in fiscal 2023, driven by demand for its engineering solutions.

Though revenues in the fiscal first quarter are forecast to decline in the high single digits, management expects continued growth for the Aerospace/Defense sector in fiscal 2025. Strength in new program ramps and strength in the space and defense subsector remain primary catalysts. Plexus also expects uncertainty within the commercial aerospace subsector to resolve as the year progresses.

New Program Wins Bode Well for PLXS

We believe a healthy number of program wins will drive the top-line performance. In the fourth quarter of fiscal 2024, Plexus won 26 manufacturing programs, representing $230 million in annualized revenues when fully ramped into production. It ended fiscal 2024 with manufacturing program wins exceeding $1 billion, including $568 million from the Healthcare/Life Sciences sector. The funnel of qualified manufacturing opportunities is pegged at $3.5 billion, indicating a strong pipeline for growth.

Plexus expects new program ramps across all three segments to aid fiscal 2025 revenue growth. The Industrial segment is also likely to gain from strength in the SemiCap market, offsetting near-term industrial demand uncertainty. The Healthcare business is likely to gain from the expected improvement in end markets, along with the normalization of inventories. Given its exposure to high-growth segments and recent improvements seen in health care, industrial, commercial and defense/aerospace sectors, the company will outgrow its peers in the EMS group in the long term.

Strong Cash Flow Generation

Plexus generated $341 million in free cash flow for fiscal 2024, with $194 million in free cash flow generated in the fiscal fourth quarter.

Strong cash flow is aiding the company to reduce debt and support its share repurchase program. PLXS paid off debt worth $184 million in the fiscal year.

Plexus repurchased $55.7 million of the company’s shares at an average price of $104 per share under its buyback program. Plexus’ board of directors approved an additional $50 million share repurchase plan in August 2024.

Going ahead, PLXS expects cash usage for the fiscal first quarter due to increased investments to support sales growth for fiscal 2025. PLXS forecasts free cash flow in the range of $50 million to $100 million for fiscal 2025.

Robust Estimate Revision Activity for PLXS

Analysts seem bullish on the PLXS stock, given the upward estimate revision activity.

In the past 60 days, analysts have increased their earnings estimates for the current quarter and the next by 9% and 9.2%, respectively, to $1.58 and $1.55 per share. The earnings estimate for the current year has also been revised upward by 9.5% to $6.79 per share.

Image Source: Zacks Investment Research

PLXS Trades at a Premium

PLXS trades a forward price-to-earnings ratio of 23.6 compared with the industry’s multiple of 18.03. Though PLXS trades at a premium, the valuation seems justified, given the robust growth opportunities. 

Image Source: Zacks Investment Research

Is PLXS Stock Worth Including in Your Portfolio?

PLXS’ strong performance, favorable demand trends and healthy capital allocation strategy make it an attractive investment opportunity. The stock’s technical indicators suggest that there could be further upside. The stock has been trading above both the 50-day and 100-day moving averages, indicating that investors are bullish on the stock.

50 &100-Day Moving Average

Image Source: Zacks Investment Research

At present, PLXS sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or #2 (Buy), offer the best investment opportunities for investors. PLXS stock appears to be a compelling investment proposition at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Plexus Corp. (PLXS) : Free Stock Analysis Report

Jabil, Inc. (JBL) : Free Stock Analysis Report

Flex Ltd. (FLEX) : Free Stock Analysis Report

Celestica, Inc. (CLS) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research