It is so easy for investors to see a company with rapidly growing earnings and jump right on board the speculating train, but it is critical for Intelligent Investors to take the time to do fundamental analysis in order to calculate an intrinsic value of a company. Only through comparing the company's intrinsic value to the market place can an investor truly get a sense of whether the company is a good investment. In addition, a company must have strong financial statements and prove that it is stable enough for Intelligent Investors. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Jabil Circuit, Inc. fares in the ModernGraham valuation model.
JBL data by YCharts
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
- Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
- Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
- Dividend Record - has paid a dividend for at least 10 straight years - FAIL
- Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
- Moderate PEmg ratio - PEmg is less than 20 - PASS
- Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS
Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
- Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - FAIL
- Earnings Stability - positive earnings per share for at least 5 years - PASS
- Dividend Record - currently pays a dividend - PASS
- Earnings growth - EPSmg greater than 5 years ago - PASS
|Value Based on 3% Growth||$20.45|
|Value Based on 0% Growth||$11.99|
|Market Implied Growth Rate||1.98%|
|Net Current Asset Value (NCAV)||-$4.99|
Balance Sheet - 11/30/2013
Earnings Per Share
Earnings Per Share - ModernGraham
JBL Dividend data by YCharts
Jabil Circuit has seen a strong level of growth since they posted a significant loss in 2009; however, the company is not suitable for either the Defensive Investor or the Enterprising Investor. For the Defensive Investor, the problem is the low current ratio, the lack of earnings stability, and the lack of earnings growth over the ten year period. For the Enterprising Investor, the only problem is the level of debt relative to current assets. As a result, value investors seeking to follow the ModernGraham interpretation of Benjamin Graham's methods should seek other opportunities, through a review of companies that pass the ModernGraham requirements. From strictly a valuation perspective, Jabil looks pretty good. The company's EPSmg (normalized earnings) have grown from -$1.46 in 2009 to an estimated $1.41 for 2014. This demonstrated growth surpasses what the market is estimating, and indicates the company may be undervalued.
The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Jabil Circuit, Inc.? Where do you see the company going in the future? Is there a company you like better?
Disclosure: The author did not hold a position in Jabil Circuit, Inc. (NYSE:JBL) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.