Consider Jabil Circuit At An Attractive Price

| About: Jabil Circuit (JBL)

Summary

Jabil posted another outstanding quarter results that beat expectation and reiterated a forecast for the full year ahead of Street estimates.

JBL is building an additional business to avoid over-dependence on Apple. The company highlighted wins across new and existing end markets, including consumer packaging, healthcare consumables, wearable technology, and automotive.

Regarding its valuation metrics, JBL's stock, in my opinion, is considerably undervalued; the EV/EBITDA ratio is exceptionally low at 3.96, and the PEG ratio is also very low at 0.92.

The average target price of top analysts is at $25, up 26% from its January 8 price. However, considering JBL's compelling valuation and high growth prospects, shares could go higher.

In my previous article about Jabil Circuit, Inc. (NYSE:JBL) from October 19, I suggested that the company will continue to benefit from its relationship with Apple (NASDAQ:AAPL), JBL's largest customer, which accounts for about a quarter of its revenues. Meanwhile, the company posted another outstanding quarter results that beat expectation and reiterated a forecast for the full year ahead of Street estimates. JBL's stock had climbed 12.7% from the date I recommended it to its 52-week high of $26 on December 4, but has fallen almost 24% since then, along with the drop in AAPL's stock. Since the beginning of 2015, JBL's stock is down 9.1% while the S&P 500 Index has decreased 6.6%, and the NASDAQ Composite Index has lost 2.0%. However, in my opinion, the recent drop in its price creates an excellent opportunity to buy the stock at an attractive price. According to TipRanks, the average target price of the top analysts is at $25, up 26% from its January 8 close price. However, considering JBL's compelling valuation and high growth prospects, shares could go higher, in my opinion.

JBL Daily Chart

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JBL Weekly Chart

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Charts: TradeStation Group, Inc.

On December 16, Jabil reported preliminary, unaudited financial results for its first quarter of fiscal-year 2016, which beat EPS expectations by $0.05 (6.2%). The company posted revenue of $5.21 billion in the period, also surpassing Street forecasts of $5.19 billion. The company showed significant earnings per share surprise in four of its last five quarters, as shown in the table below:

Source: Yahoo Finance

In the report, Mark T. Mondello, the company's chief executive officer, said:

I am extremely pleased with our strong first quarter results which were driven by improved product diversification and exceptional productivity across both of our business segments. This record quarter illustrates the power of both our DMS and EMS businesses as highlighted by a 55 percent core EPS growth year-on-year. This is a great start to our fiscal year and Jabil remains well-positioned for a solid 2016.

I see continued high growth prospects for the company organically and through acquisitions. The company expects an increase in market share as its team weaves together complementary solutions from the three strategic acquisitions it recently closed. Catalysts for growth, according to the company, are Nypro Healthcare business that continues to benefit from a broad disruption in the areas of the med device, patient diagnostics and big pharma. Also, rapid advancements in wearable technologies and data analytics are contributing to growth. In addition, the automotive team is the beneficiary of vehicle road maps that now incorporate a higher degree of connectivity and a dramatic increase in electronic content. Moreover, JBL's connected home business is rapidly converging on the combination of connectivity, low-cost sensors and predictive analytics. The world is driving greater bandwidth into the home and the office. From faster data streaming that supports high-definition video, to improved product intelligence, to endless selections of on-demand, to new market applications.

Some investors are concerned the company is too dependent on Apple, which is Jabil's largest customer. JBL makes iPhone 6 and iPhone 6 Plus casings. Apple accounted for 24% of Jabil's fiscal 2015 revenues, up from 18% in fiscal 2014. Apple's revenue contribution in fiscal 2015 grew 51% from fiscal 2014. The fact that Jabil is expanding a facility in China mostly for Apple production demonstrates that the company is quite confident about its future relationship with AAPL. However, Jabil is building an additional business to avoid over-dependence on Apple. On the first quarter conference call, Jabil highlighted wins across new and existing end markets, including consumer packaging, healthcare consumables, wearable technology, and automotive.

Valuation

Regarding the valuation metrics, JBL's stock, in my opinion, is considerably undervalued. The trailing P/E is very low at 11.02, and the forward P/E is even lower at 7.0. The price-to-sales ratio is extremely low at 0.20, and the Enterprise Value/EBITDA ratio is exceptionally low at 3.96. Furthermore, the PEG ratio is also very low at 0.92. The PEG ratio - price/earnings to growth ratio - is a widely used indicator of a stock's potential value. It is favored by many investors over the P/E ratio because it also accounts for growth. A lower PEG means that the stock is more undervalued.

The company is paying a dividend. The forward annual dividend yield is at 1.61%, and the payout ratio is only 18%. The annual rate of dividend growth over the past five years was at 2.7%. During the last quarter, JBL repurchased approximately 2.8 million shares at a total cost of $55 million, thereby exhausting its current share repurchase authorization.

Ranking

According to Portfolio123's "Momentum Value" ranking system, JBL's stock is ranked second among all 147 Russell 1000 tech stocks.

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The "Momentum Value" ranking system is quite complex, and it is taking into account many factors like yield, price to book value, trailing P/E, price to sales, return on equity, sales growth, and relative strength, as shown in the Portfolio123's chart below:

Back-testing over 16 years has proved that this ranking system is very useful; the reader can find the back-testing results of this ranking system in this article.

Summary

Jabil posted another outstanding quarter results that beat expectation and reiterated a forecast for the full year ahead of Street estimates. I see continued high growth prospects for the company organically and through acquisitions. The company expects an increase in market share as its team weaves together complementary solutions from the three strategic acquisitions it recently closed. Jabil is building an additional business to avoid over-dependence on Apple. On the first quarter conference call, Jabil highlighted wins across new and existing end markets, including consumer packaging, healthcare consumables, wearable technology, and automotive. Regarding the valuation metrics, JBL's stock, in my opinion, is considerably undervalued; the EV/EBITDA ratio is exceptionally low at 3.96, and the PEG ratio is also very low at 0.92. The average target price of the top analysts is at $25, up 26% from its January 8 close price. However, considering JBL's compelling valuation and high growth prospects, shares could go higher, in my opinion.

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.