GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Jabil Circuit Investors Need to Be Patient for Long-Term Returns

June 06, 2014 | About:
Rustic Nomad

Rustic Nomad

0 followers

Jabil Circuit (JBL) hasn’t performed well since the start of the year and the results for the second quarter were not up to the scratch. Consequently, the company was demoted to sector perform from outperform at RBC Capital. Also, the electronics manufacturing service company ended losing customers like BlackBerry and the recent collapse of Apple’s plastic-built iPhone 5c led to a substantial drop in its earnings.

However, Jabil does offer some sort of relief to investors as it is determined to leave the bad times behind and turnaround the things with some impressive initiatives that could probably fetch better results for the company going forward.

Focus on the Turnaround

Nevertheless Jabil is focused to turn around the momentum and is therefore working on various prospects that should help the company to reposition in the future in an environment which is highly competitive. Its strategic initiatives like incurring extra production expense in order to improve its operational effectiveness, along with some fruitful moves like implementing automation for production processes with various advanced engineering activities, will certainly help the electronic manufacturing services company to display better numbers.

Opportunities

Jabil has opportunities in the growing smartphone market in China, along with other potential markets where demand for LTE products is growing continuously. Besides, the company has strategically acquired 15 new clients in the high velocity segment that should help the company drive its long-term growth, as the segment was hurt due to exit of BlackBerry.

BlackBerry, on the other hand, is busy in implementing turnaround plans for its mobile sector as the market for smartphones is continuously growing. This should possibly help Jabil gain the confidence of BlackBerry in the future. BlackBerry is now concentrating on low cost devices, and efforts have started bearing fruits already.

BlackBerry's new low-cost smartphone, the Z3, has received a solid response from the market. The device was sold out soon after pre-orders started in the Indonesian market. This indicates that the phone should sell in good numbers in the emerging markets.

Conversely, Jabil’s sales were also hit because of poor demand from Apple as reported by the Wall Street Journal. Jabil manufactures the plastic cases for the iPhone 5c and the metal exteriors for the iPhone 5s. However, the iPhone 5c was hardly successful and it led to a decline in Jabil's business.

However, Jabil is expected to substantially benefit as Apple is planning to launch two new iPhones with big screens that should increase its core fundamentals such as revenue and net profit, as a bigger iPhone will result in higher metal content on the exterior, thus expanding Jabil’s market.

Moreover, the electronic manufacturing services company is aggressively diversifying into other areas. For example, its Nypro healthcare team has recently launched new design wins in the market at marquee customers in the areas of food and beverage, as well as consumer packaging.

Now, the company has extended product portfolio that should drive its growth in the long run going forward. Also, Jabil has recently announced the launch of two new factories in its Nypro division that will enhance its production capacity as the company is planning to roll out these products in the market in the second half of 2014. These factories will certainly add a lot of support to its healthcare and packaging sectors and drive its growth in the future.

Bottom Line

Jabil is cheap at a trailing P/E of 14, and on the forward P/E basis, Jabil is even cheaper at a P/E ratio of 10. Moreover, the company is in the turnaround phase in its business, and Jabil has certain strong clients that will definitely help the company to bounce back in the near future. Also, Jabil could be a good investment based on its current valuation. In addition, Jabil has a dividend yield of 1.80%, so investors have one more reason to invest in the stock.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide