Sell - Price 14.37 on Feb. 3
by Collins Stewart

Lowering target to 9 (from 10.75)...based on just under 10 times (from 8 times) our calendar '09 pro forma EPS estimate of 91 cents (from $1.36). This P/E is in line with trough multiples in the electronics-supply chain during certain downturns and near current multiples for the [electronics manufacturing service] group. Risks include tech-spending trends, regulation changes and integrating acquisitions. Market cap: $568 million.

Q: One more pick, please.

A: Plexus [PLXS], a technology company and a contract manufacturer. They provide product engineering skills, and then will actually manufacture the product for an OEM [original-equipment manufacturer] customer. Plexus has premium levels of profitability in an industry that has relatively narrow margins. They generate pretax margins on a consistent basis of 5% to 7%, in an industry whose average is closer to 2% or 3%. The company has minimal debt, and they've grown steadily over time. They are diversified across a number of sectors, both in computing and networking. Medical is a big market for them in terms of customers. They also make and design products for the industrial market, defense and aerospace. We like the diversification of their portfolio. In their most recent fiscal year, which they just completed, they earned $1.94 a share. The stock is currently around $13. This is just an unusual opportunity to buy a premium company with the financial profile they have, and the know-how that few other companies can match.

Credit Suisse said it is downgrading Plexus (PLXS) to Neutral rfom Outperform based on valuation and negative channel checks. Shares are up 20% in past month, and recent checks indicate softening backlog with Juniper post-May. Price target at $30.

Contract electronics maker Plexus Corp. said Tuesday its board approved a financial recapitalization, under which it will borrow $150 million to buy back up to $200 million of its common shares.

"Over the last several months we have conducted a comprehensive review of our capital structure, and believe that a moderate amount of debt at the current favorable interest rates strikes the right balance for Plexus," said Chief Financial Officer Ginger Jones in a statement.

Also, Credit Suisse analyst William Stein raised his rating to "Outperform" from "Neutral" on signs that its fiscal second-quarter sales and bookings are better than the company had expected.

The stock trades for 7.5x cash flow.

Plexus (PLXS) was upgraded by JP Morgan from Neutral to Overweight.

Electronics maker generates high margins from more than 160 customers.

Return on Assets: 10%
Free Cash Flow (millions): $71

LOW PRICE

Growth

Turnaround story
Near 52-week low

YTD % return: -27.60