Is Jabil Circuit Stock Wired for Profits?

Source: Thinkstock

Source: Thinkstock

Jabil Circuit (NYSE:JBL) is a very well-known tech name with a storied history. Just when the company seems like it is down and out, it comes roaring back. At other times, when the company is firing on all cylinders, it stalls out. For those who do not know the company, it provides electronic manufacturing services and solutions. The company operates in three main segments: Diversified Manufacturing Services, Enterprise & Infrastructure, and High Velocity Systems.

It offers electronics design, production, and product management services to companies in the aerospace, automotive, computing, consumer, defense, healthcare, industrial, instrumentation, medical, networking, packaging, peripherals, solar, storage, and telecommunications industries. The company’s services include integrated design and engineering; component selection, sourcing, and procurement; automated assembly as well as design and implementation of product testing. It also provides mobility, display, set-top boxes, and peripheral products, such as printers and point of sale terminals; and aftermarket services consisting of warranty and repair services.

The stock has been all over the place with lots of volatility in the last few years. After two years, the stock is only up 5 percent. However, I think the stock is fixing to break out now on the back of strong quarter.

In its most recent quarter, the company reported third quarter revenue of $3.8 billion. Now, breaking that number down we see that the Diversified Manufacturing Services segment made up nearly half of the revenue at $1.6 billion. This was followed by the Enterprise & Infrastructure segment, which brought in another $1.3 billion. Rounding out the segments was the High Velocity Systems which saw revenues of $0.9 billion. Now the company has had another tough quarter with a GAAP operating loss for the quarter of ($1.6) million and GAAP net diluted income per share was $0.93. The company indicated that $12.4 million in restructuring costs during the quarter negatively impacted GAAP operating income and that $238.5 million in gain on sale of discontinued operations, net of tax positively impacted GAAP net income. Core operating income was $45.3 million and core diluted loss per share was ($0.06). Forbes Alexander, Chief Financial Officer, stated:

Our third fiscal quarter performed largely as planned and is highlighted by a strong balance sheet performance, driven by significant cash-flow from operations and a total cash position of $1.3 billion. We believe the strength of our balance sheet positions us well as we consider strategic investments in key growth areas in fiscal 2015.

Okay, so the company just beat earnings by $0.02 and revenue came in $200 million over analyst expectations. That’s some quarter. But looking ahead, things look even better. The company sees GAAP net diluted earnings per share for the fourth quarter of fiscal year 2014 including roughly $0.03 per share for amortization of intangibles, $0.07 per share for stock-based compensation expense and related charges, $0.05 to $0.10 per share for restructuring and related charges.

What hurts, though, is it that compared to last year’s quarter, Diversified Manufacturing Services revenue is projected to decline 6 percent, Enterprise & Infrastructure revenues are projected to decline 7 percent, and the High Velocity Systems expects a whopping decline of 38 percent. While that seems very negative, the CEO stated he was “confident in our fiscal year 2015 outlook” as the company anticipates growth in several key areas. Thus, the guidance was impressive for 2015. Management maintained its fiscal year 2015 outlook of $1.65 to $1.95 core earnings per share, and it is likely to come in at the higher end. On the back of this better than expected report, I anticipate Jabil’s stock to move significantly higher from its current price of $20.10.

Disclosure: Christopher F. Davis holds no position in Jabil Circuit. He has a buy rating on the stock and a $25 price target.

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