Jabil Circuit: Diversified Product Portfolio Can Provide Growth Momentum

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Dec 18, 2014
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Jabil Circuit (JBL, Financial) had a rough patch in the past, but the strategic decision of diversification and also heavier product portfolio that caters to a wider market base can certainly provide growth for the company. The company is focused on repeating the benefit of the growing market of IoE (Internet of Everything) and additive manufacturing commonly termed as 3D printing. The company also has a product portfolio that provides solutions for diversified sectors like healthcare, industrial automation, power conversion system and instrumentations. It is predicated that around 25 billion devices will be hooked on to internet and function as an interconnected devices by 2015, and may reach to 50 billion devices by 2020. The revenue generated by the IoE market is anticipated to reach $14.4 trillion by year 2022. Jabil is one of the companies that is now focused to join the bandwagon of IoE solution provider and reap the benefit.

Overview of the quarter

The company recently declared its fourth quarter results for the fiscal 2014 and was not so strong. The consolidated revenue decreased by 10% year-over-year, to $4.1 billion as compared to $4.5 billion in the same quarter last year. The company has diversified its manufacturing business which resulted in the weak performance from the decline of business volume. Furthermore, the loss of blackberry as a client was a factor that resulted in the downfall. For the fiscal 2014, the company’s revenue decreased by 8.8% to record $15.8 billion as compared to $17.2 billion in fiscal 2013.

Diversification For Growth

Jabil is now targeting to have a stronger product portfolio with various diversifications; this can leverage growth in future. The strategy is exemplified with as now Jabil has ventured into Healthcare after the acquisition of Nypro. The company has already started receiving a good response from healthcare. The Nypro healthcare team is already making a positive impact as it bags new customers, in the area of food and beverages as well as consumer packaging. The company has also announced addition of two new services to Nypro division that can leverage more growth in future. The Company is allocating budget for investments in Nypro and as it looks for growth from its healthcare, pharmaceuticals and packaging divisions.

Journey Ahead

The company faced a major setback with the disengagement of blackberry and also the failure of iPhone 5C. But, the company expects a better first quarter of the fiscal 2015 primarily due to the strong sales of the new iPhone. This can provide the diversified manufacturing business segment of the company, a certain growth. This segment manufactures casing for iPhone and it anticipated to achieve a growth of 6% due to strong sales of iPhone new releases.

The company anticipates the fiscal 2015 to be stronger than the fiscal 2014. For the next quarter, the company anticipates revenue to be in the range of $4.2 billion to $4.4 billion. The estimated revenue of the management is higher than the revenue estimated by consensus of analysts that stands at 4.12B for Q1 2015. EPS is expected to be in the range of $0.41 to $0.53 for the first quarter of the fiscal 2015, while the anticipated EPS for the fiscal 2015 is expected to be in the range of $1.65 to $1.95. Analysts also estimate the growth of 19% for next year and growth of 12% every year for next five year. This further goes on to conclude that the company is wt for growth in future and can provide good returns to the investors.

Conclusion

Currently, Jabil has a trailing P/E of 17.4, which is quite impressive. But its forward P/E seems even better at 9.74, which shows that its earnings will improve in the future. Although Jabil has been undergoing through bad phase, there are various growth prospects as well, which can offset the negatives. The company has also provided a growth oriented guidance which can certainly provide growth. Considering these factors Jabil seems to be a good investment option, but from a long term point of view.