Plexus Corp (
PLXS
)
recently announced its plan of replacing its existing leased
facility in Oradea, Romania, by building a new factory. The
manufacturing unit is expected to come up in the Eurobusiness
Industrial Park and will span 280,000 square feet. The unit is
surrounded by vacant land, which the company can use for future
expansion.
Plexus expects to complete construction by 2013, which is
expected to cost an additional $40.0 million. The increased
capacity of the factory will also boost staffing levels. The
present leased facility employs 245 workers, but Plexus expects to
increase it to 500 once the new unit becomes operational.
We believe that the new expanded unit will help Plexus meet the
improving end-market demand. During the first quarter of 2012,
Plexus won 28 new programs in the manufacturing solutions group,
which are expected to generate approximately $203.0 million in
annualized revenue when production ramps.
Plexus is well positioned to benefit from the increasing
outsourcing trend among the medical, industrial and
defense/aerospace OEMs. Currently, Plexus has new manufacturing
opportunities of approximately of $1.9 billion, of which 40.0% is
from the fast-growing medical sector.
The construction of the new facility also reflects Plexus'
policy of expanding its manufacturing footprint in the low cost
regions of Romania, Scotland, Mexico, Malaysia and China. In fiscal
2011, Plexus commenced construction of a new unit in Xiamen, China.
The construction is expected to be completed by the second half of
fiscal 2012.
The company has also built a new manufacturing facility in
Penang, where it recently shifted certain assets acquired from
Kontron AG during the first quarter. The acquisition is expected to
add incremental revenues of $50 - $75 million for Plexus, based on
specified volumes from Kontron and will be modestly accretive to
its earnings in 2012.
We believe that Plexus will have to seek new opportunities to
expand its production capacity, particularly in the low cost
regions to meet the increasing demand. Plexus plans to expand its
total manufacturing capacity to approximately 3.5 million square
feet by 2014 from 2.8 million square feet in 2011. We believe that
Plexus's policy of shifting production to lower-cost regions will
boost profitability going forward.
However, intense competition, continued component challenges and
supply chain constraints remain major concerns for Plexus over the
long term.
Thus, we have Neutral recommendation on Plexus over the long
term (6-12 months). Currently, Plexus has a Zacks #3 Rank, which
translates into a Hold rating for the short term.
PLEXUS CORP (
PLXS
): Free Stock Analysis Report
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