High Yield Corporate Bond Review: JABIL CIRCUIT INC SENIOR NOTES 7.75% COUPON
by Randy Durig, CEO of Durig Capital
Jabil (NYSE:JBL) provides electronic manufacturing services. Jabil designs and manufactures electronic circuit boards for major OEM's in a diverse group including Automotive, Computing and Storage, Consumer Products, Medical, Networking, Peripherals and Telecommunication.
At Durig Capital, we have developed a process for our clients to review, select, purchase and monitor Corporate Bonds. Enclosed is our review along with supporting documents showing why we believe it makes sense with our corporate bond clients' portfolios. We reviewed 10,000 separate Corporate bond listings to find what, we believe, currently is the best corporate bond for Investors. The following includes our selection criteria.
Step 1 - Yield Curve at 4-7 Years Out.
We went out on the yield curve just enough to receive higher returns in yield but not far enough that if inflation starts to increase, due to our country's largest deficit spending, it's creating small but real probability of increased inflation which could lead to a loss of principle loss. To protect our client in this worst case scenario we would just plan to hold to maturity.
Step 2 - We like companies that are profitable.
Jabil had a pro-foma profit of $0.32 and well above analyst estimates of $0.29 for the last quarter.
Step 3 - We like companies with low debt to cash ratio.
Jabil's current debt is $1.18 billion and cash equivalents was $852 million. If Jabil applied it's current cash to it's current debt, it would have only $328 million in debt with core earnings of $68 million last quarter.
Step 4 - We like high yields.
Jabil bonds currently have a 6.727 % Yield. With the corresponding Treasury yielding 2.73 % gives Jabil an atractive 3.997 % spread over Treasuries.
Step 5 - We currently like shorter maturities.
Jabil bonds mature in 7/15/2016, or in just over 6 years.
A good 6.5% yield for a 5+ year bond that even thought it had a lower rating, coverage above close to almost cash and it's short term profit execution was very nice. Delivering a good profit soon after a tremendous shock to our economy helps prove to me the value of it's business model. I believe, with the low debt level and good profitability, it's well situated for an upgraded bond rating. You can find other High Yield Corporate Bonds listed on our web site by clicking here.
Ratings Ba1/ BB+
Yield to Maturity 6.727%
Yield to Call 6.727%