Plexus Corp. (PLXS)

Executive Summary / Key Takeaways

• Margin Expansion Despite Flat Revenue: Plexus delivered 40 basis points of non-GAAP operating margin expansion and 30%+ EPS growth in FY2025 despite essentially flat consolidated revenue, demonstrating that automation investments and favorable mix shifts are structurally improving profitability even in a challenging demand environment.

• Record Program Wins Signal Accelerating Growth: The company secured 141 new manufacturing programs worth $941 million in annualized revenue during FY2025, including its largest-ever sustaining services win and best quarterly engineering solutions wins in five years, positioning it for accelerated revenue growth in FY2026.

• Geographic Divergence Creates Opportunity: While APAC delivered 8.1% sales growth driven by new product ramps and semi-cap strength, EMEA declined 18.2% due to macroeconomic industrial softness, highlighting Plexus's ability to offset regional weakness through operational excellence and market share gains elsewhere.

• Competitive Moats Deepen in Regulated Markets: Investments in automation (300% pick rate improvements, 60% space reduction), cybersecurity certifications, and engineering solutions (double the manufacturing margin) are expanding Plexus's competitive moat in aerospace/defense and healthcare, where regulatory complexity creates high barriers to entry.

• Valuation Balances Strong Execution with Concentration Risk: At $152.58 per share, Plexus trades at 24.4x earnings and 14.0x EV/EBITDA, reflecting solid execution but leaving little room for error given customer concentration (top 10 customers = 49.1% of sales) and macro sensitivity in the industrial sector.

Setting the Scene: From Contract Manufacturer to Solutions Partner

Plexus Corp., founded in 1979 and headquartered in Neenah, Wisconsin, has evolved far beyond its origins as a traditional electronic manufacturing services (EMS) provider. The company operates a global network of design and manufacturing centers across the Americas, Asia-Pacific, and Europe, serving approximately 190 customers in three highly regulated sectors: Aerospace/Defense, Healthcare/Life Sciences, and Industrial. This positioning in complex, compliance-heavy markets fundamentally shapes Plexus's economics and competitive advantages.

The EMS industry is brutally competitive, with numerous global and regional players fighting for contracts in an environment where customers often view manufacturing as a commoditized service. Plexus's strategy rejects this commoditization. Instead of competing solely on price for high-volume production, the company partners with customers across the entire product lifecycle—from design and development through new product introduction, manufacturing, and sustaining services. This integrated approach commands premium pricing and stickier relationships, particularly in sectors where a single defect can have life-or-death consequences.

Plexus's competitive landscape includes large-scale providers like Jabil (JBL) and Celestica (CLS) that leverage massive scale for cost leadership, as well as specialized players like Sanmina (SANM) and Benchmark Electronics (BHE) that compete in overlapping niches. What distinguishes Plexus is its deliberate focus on lower-volume, higher-complexity programs where regulatory expertise and engineering depth matter more than pure production efficiency. This focus shows up in the financials: Plexus's 5.0% operating margin and 10.1% gross margin exceed those of Jabil (2.2% profit margin) and Benchmark (1.4% profit margin), though they trail Celestica's 6.4% profit margin, which benefits from AI-driven data center exposure.

The company's history of strategic investment explains its current positioning. Fiscal 2025 marked a pivotal year where years of automation development, supply chain optimization, and engineering capability building converged to drive margin expansion despite flat revenue growth. This wasn't accidental—it was the result of deliberate choices to invest in capabilities that competitors couldn't easily replicate.

Technology, Automation, and Strategic Differentiation

Plexus's automation initiatives represent more than cost-cutting; they are transforming the company's capacity and competitive positioning. A warehouse automation pilot in Penang delivered a 300% increase in pick rates while reducing space utilization by 60% and achieving similar labor reductions. These aren't incremental improvements—they are step-function changes in operational efficiency that directly expand profitability. The company is rolling this system out to three additional facilities in fiscal 2025 and plans to deploy automated material robots across all sites by spring 2026, targeting roughly half of the applicable opportunity by year-end.

This automation drive matters because it addresses one of EMS's fundamental challenges: the trade-off between flexibility and efficiency. Traditional high-volume manufacturers achieve low unit costs through rigid, capital-intensive lines that can't easily adapt to program changes. Plexus's approach—automating warehousing and material handling while maintaining flexible production cells—preserves its ability to serve diverse customer needs while driving down overhead. The result is a structural reduction in fixed costs that supports margin expansion even when revenue growth is muted.

Engineering solutions represent another critical differentiator. While these services account for less than 5% of consolidated sales, they generate approximately double the manufacturing margin and influence about one-third of manufacturing revenue. In fiscal 2025, Plexus achieved record engineering wins in Aerospace and Defense, with the funnel of opportunities continuing to diversify beyond traditional healthcare into semi-cap and life sciences. This matters because engineering engagements act as a leading indicator for future manufacturing wins—customers who trust Plexus with design are far more likely to award production contracts.

The sustaining services business, which provides repair, refurbishment, and aftermarket support, achieved record wins in FY2025 including the largest single award in company history for a healthcare customer. This represents a strategic shift as customers increasingly outsource services that were previously handled in-house. Sustaining services carry the potential to reach corporate target margins as they scale, creating a higher-margin revenue stream that diversifies Plexus away from pure manufacturing.

Financial Performance: Evidence of Strategic Execution

Fiscal 2025's financial results validate Plexus's transformation thesis. Revenue grew 1.8% to $4.033 billion, a modest headline figure that masks significant underlying strength. Non-GAAP operating margin expanded 40 basis points to 5.0%, while non-GAAP EPS surged over 30% to $7.43. This margin expansion in a low-growth environment is precisely what the automation and mix-shift strategy promised to deliver.

The segment performance reveals the story's nuances. APAC drove growth with 8.1% sales increase to $2.393 billion, powered by $103 million in new product ramps and strength in semi-cap. Operating income in APAC rose $24.5 million as higher sales and favorable mix more than offset increased fixed costs. This region is also benefiting from the new Penang facility opening in summer 2025, which management expects to reach profitability quickly and approach corporate margins within two quarters—an unusually fast ramp for a new manufacturing site.

Conversely, EMEA's 18.2% sales decline to $440 million reflects macroeconomic industrial weakness hitting Europe harder than other regions. However, Plexus responded with restructuring and improved utilization, partially offsetting the revenue shortfall. The Americas segment held steady at $1.216 billion, with operating income actually increasing $16.8 million due to operational efficiencies and positive customer mix shifts despite flat sales.

From a market sector perspective, Healthcare/Life Sciences grew 4.8% to $1.629 billion, driven by imaging and monitoring subsectors plus new program ramps. Aerospace/Defense was essentially flat at $688.5 million, as double-digit growth in defense and space subsectors offset commercial aerospace production delays and inventory adjustments. Industrial revenue was flat at $1.715 billion, with low double-digit semi-cap growth offsetting weakness in industrial equipment and vehicle electrification.

Cash generation underscores operational excellence. Plexus produced $154 million in free cash flow for FY2025, contributing to $495 million over the past two fiscal years. The company used this cash to reduce debt by over $100 million and repurchase $65 million in shares while maintaining a conservative gross debt-to-EBITDA ratio below 1. The cash cycle improved to 63 days, the best result in five years, reflecting successful inventory reduction efforts that freed up over $330 million compared to FY2023 levels.

Outlook, Guidance, and Execution Risk

Management's FY2026 guidance signals confidence in accelerated growth. The company anticipates revenue growth exceeding market rates across all sectors, with particular strength in semi-cap and European defense. This outlook is supported by the record $941 million in new program wins, which will begin ramping throughout fiscal 2026. The guidance does not assume any recovery in Boeing (BA) or Airbus (EADSY) production rates beyond current levels, suggesting potential upside if commercial aerospace normalizes.

First quarter FY2026 guidance calls for revenue of $1.05-1.09 billion, non-GAAP operating margin of 5.6-6.0%, and EPS of $1.66-1.81. Gross margin is expected at 9.8-10.1%, with selling and administrative expenses of $51.5-52.5 million. The company projects robust free cash flow of approximately $100 million for the full year, even with $90-110 million in capital expenditures for automation and the new Penang facility.

The execution risk lies in the pace of program ramps and the company's ability to maintain operational discipline while scaling. The new Penang facility's quick path to profitability is critical—any delays would pressure margins and cash flow. Similarly, the automation rollout across all sites by spring 2026 must deliver the promised efficiency gains without disrupting production.

Management's commentary reveals a nuanced view of demand drivers. In semi-cap, Plexus expects low double-digit growth driven by share gains rather than broad market expansion, as wafer fab equipment spending grows only in the low single digits. This share-gain dynamic is more controllable but requires continuous program wins. In defense, the company sees strong demand and early signs of increased European spending, positioning it well for growth even if U.S. budgets face pressure.

Risks and Asymmetries

Customer concentration remains the most material risk. The top 10 customers accounted for 49.1% of FY2025 sales, meaning the loss of a major program could significantly impact revenue and margins. This risk is amplified in the Aerospace/Defense sector, where contract transitions and program discontinuations created $23.6 million in headwinds during FY2025. While the company is diversifying through record new wins, the concentration creates vulnerability to customer-specific decisions.

Geographic concentration in APAC, particularly Malaysia, exposes Plexus to regional disruptions. With significant production capacity in Penang, any political instability, natural disaster, or supply chain disruption in the region could materially impact operations. The company mitigates this through geographic diversification, but APAC's scale means any regional issue would have outsized impact.

The industrial sector's macro sensitivity presents another risk. While semi-cap strength has offset weakness in industrial equipment and vehicle electrification, a broader downturn could overwhelm these gains. Management notes that industrial softness is hitting Europe harder than other regions, and the communications subsector remains "choppy" with nonlinear demand patterns.

Trade policy and tariffs create ongoing uncertainty. While management states they see no current demand impact from tariffs and pass costs through to customers, the complexity of USMCA compliance and potential for future trade restrictions could disrupt supply chains. The company's "north of 80%" USMCA compliance in Mexico provides some insulation, but not immunity.

On the positive side, several asymmetries could drive upside. Commercial aerospace represents a coiled spring—production rates are currently depressed but the OEM backlog extends 11.5 years. Any normalization would provide significant revenue lift, particularly for the APAC segment's aerospace programs. Similarly, the new Penang facility's rapid ramp could exceed expectations, accelerating margin improvement. The automation initiatives, if successful across all sites, could deliver permanent cost reductions that exceed the 40 basis points of margin expansion already achieved.

Competitive Context and Positioning

Plexus occupies a distinct position in the EMS landscape. Against Jabil's $24 billion market cap and massive scale, Plexus's $4.1 billion valuation reflects its focused strategy. Jabil's 2.2% profit margin and 8.9% gross margin demonstrate the cost-leadership model, but also its exposure to commoditized consumer electronics. Plexus's 4.3% profit margin and 10.1% gross margin show the premium it commands in regulated markets, though Jabil's 40.4% ROE reflects superior capital efficiency at scale.

Celestica represents the growth-oriented competitor, with 6.4% profit margins and 55.5x P/E reflecting its AI and data center exposure. While Celestica's 16.6% revenue growth far outpaces Plexus's 1.8%, Plexus's 12.4% ROE and 24.4x P/E suggest a more reasonably valued company with less execution risk. Celestica's 118.9x price-to-FCF ratio indicates market expectations for continued hypergrowth that may prove difficult to sustain.

Sanmina and Benchmark operate closer to Plexus's scale and strategy. Sanmina's 3.0% profit margin and 8.8% gross margin are inferior to Plexus's, while its 7.4% revenue growth is stronger. Benchmark's 1.4% profit margin and 10.1% gross margin show similar margin pressure, though its 3.5% quarterly growth lags Plexus's trajectory. Both competitors lack Plexus's automation-driven efficiency narrative and record program win momentum.

Plexus's competitive moats are specific and defensible. Its regulated sector expertise creates switching costs that commodity EMS providers cannot match. The automation investments deliver quantifiable efficiency gains that peers are only beginning to replicate. Engineering solutions provide a lead-generation engine with double the manufacturing margin. These advantages are most valuable in aerospace/defense and healthcare, where compliance complexity deters new entrants and justifies premium pricing.

Valuation Context

At $152.58 per share, Plexus trades at 24.4x trailing earnings and 14.0x EV/EBITDA, with an enterprise value of $3.99 billion representing 0.99x revenue. The 26.7x price-to-free-cash-flow ratio reflects the market's recognition of strong cash generation, while the 2.8x price-to-book ratio indicates modest asset intensity.

Relative to peers, Plexus's valuation appears balanced. Jabil trades at 38.1x earnings despite lower margins, reflecting its scale and diversification. Celestica's 55.5x earnings and 35.6x EV/EBITDA embed aggressive growth expectations that Plexus doesn't face. Sanmina's 36.1x earnings and 16.3x EV/EBITDA are comparable, though its lower margins suggest Plexus deserves a modest premium. Benchmark's 46.7x earnings appears stretched given its margin challenges.

The key valuation driver is whether Plexus can deliver on its FY2026 guidance of revenue growth exceeding market rates while sustaining 5.5-6.0% operating margins and $100 million in free cash flow. The record program wins and automation benefits support this trajectory, but execution risk remains. The stock's 0.81 beta indicates lower volatility than the broader market, consistent with its defensive end-market exposure.

Conclusion

Plexus Corp. has engineered a subtle but powerful transformation from traditional contract manufacturer to automation-enabled solutions partner. The FY2025 results—30%+ EPS growth on flat revenue, record program wins, and 40 basis points of margin expansion—demonstrate that strategic investments in automation, engineering capabilities, and regulated market focus are creating durable competitive advantages.

The central thesis hinges on two variables: the pace of program ramps from the $941 million in new wins, and the scalability of automation benefits across the global footprint. Success on both fronts would drive the 9-12% revenue growth target and sustained margin expansion that management envisions. Failure would expose the company to margin pressure from fixed costs and customer concentration risks.

For investors, Plexus offers a compelling combination of defensive end-market exposure, operational leverage from automation, and reasonable valuation relative to execution quality. The stock's performance will likely be determined not by broad EMS industry cycles, but by the company's ability to continue winning complex, high-margin programs while extracting efficiency gains that competitors cannot replicate. The new Penang facility's ramp and the automation rollout through spring 2026 are the critical milestones to watch.