Manufacturing Growth At Jabil

3/12/2012


  Recent Price
$25
  Dividend
$0.32
  Yield
1.3%
  P/E Ratio
10
  Shares (millions2
210
  Long-Term Debts as % of Capital
37%
  52-Week Price Range
$26.50 - $13.94

Jabil Circuit ($25; JBL), a provider of electronics-manufacturing services, delivered all-time highs for per-share earnings, sales, and cash provided by operations in fiscal 2011 ended August. All three measures continued to grow in the November quarter, on pace for another record year. The consensus calls for earnings per share of $2.57 in fiscal 2012, implying 10% growth, on 5% higher revenue.

Shares have rallied 26% in 2012, doubling the 13% gain posted by the S&P 1500 Technology Sector Index. Yet the stock trades at just 10 times trailing earnings, 39% below the industry median and 40% below its three-year average P/E of 17.  If Jabil's P/E merely reverts back to its one-year average of 12 and management hits Wall Street's profit target, then shares would climb another 21% over the next nine months. Jabil is rated Buy and Long-Term Buy.

Business breakdown

In sluggish economic environments, manufacturers often shift strategy, refocusing their efforts on marketing, research, and development. In an effort to trim costs in other areas, many have turned to Jabil's outsourcing services, such as engineering, design, and assembly automation. 

For instance, the diversified manufacturing services segment (38% of Jabil's revenue in the 12 months ended November, 57% of pretax income) manages the production process, also providing design and aftermarket services. Jabil helps design circuits used in mobile phones, personal computers, medical equipment, and controls for cars and other consumer goods. It also operates aftermarket service centers that perform warranty and repair services. In the past year, the services segment's sales surged 38%, and Jabil continues to devote more resources to its most-profitable unit.

Enterprise and infrastructure (31%, 23%) uses technology to boost the efficiency of supply chains for the medical, computer-storage, networking, and telecom industries. Revenue climbed 12% over the past year.

The high velocity systems (30%, 19%) unit provides supply-chain services geared toward consumer products. Sales grew just 1% in the past year, the weakness reflecting Jabil's efforts to de-emphasize this unit.

Jabil is working to diversify its customer base, but the business remains highly concentrated, with its five biggest customers accounting for 47% of fiscal 2011 revenue. The largest customer is Research In Motion ($13; RIMM), and Jabil's reliance on the sputtering BlackBerry maker has actually increased in the past couple years to 15% of total revenue in fiscal 2011. But Cisco Systems ($19; CSCO) accounts for another 13% of annual revenue, and Jabil is winning more business from Apple ($530; AAPL), which reportedly now generates more than 10% of sales.

Conclusion

Management is authorized to repurchase $100 million of shares through October, enough to shrink the share count 2% at current prices. In the six months ended November, Jabil spent a net $165 million on share repurchases, reducing the share count by nearly 6%. An annual report for Jabil Circuit Inc. is available at 10560 9th St. North, St. Petersburg, FL 33716; (727) 577-9749; www.jabil.com.

JABIL CIRCUIT
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Nov '11
0.65
vs.
0.61
+ 6%
21.49
-
14.93
9 - 6
Aug '11
0.62
vs.
0.52
+ 11%
21.50
-
13.94
10 - 6
May '11
0.58
vs.
0.40
+ 22%
22.11
-
18.46
11 - 9
Feb '11
0.54
vs.
0.29
+ 31%
23.09
-
15.30
13 - 8
           
Year
(Aug.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
16.52
1.99
0.28
23.09
-
10.39
12 - 5
2010
13.41
1.05
0.28
18.49
-
10.17
18 - 10
2009
11.68
0.40
0.28
17.33
-
3.10
43 - 8
2008
12.78
0.94
0.28
25.80
-
9.03
27 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
66
85
78
36
86
95

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com