Jabil, Inc. manufactures value for shareholders

Key Points

• Jabil has a solid quarter and gives better-than-feared guidance, sending shares higher. 
• Share repurchases are fueled by robust cash flow and are forecast to reduce share count by 8% next year. 
• Analysts like this stock and have it ranked in 1st position on Marketbeat's Top Rated Buy Stocks. 

Jabil, Inc. NASDAQ: JBL is a double-narrative, and investors will like both. On the one hand, it’s suffering from end-market weakness, impacting the outlook for top-line growth. That has put some pressure on the market and caused the stock price to be corrected following the FQ4 release in late fall. That event has the stock trading at a deep value of only 13X earnings. 

On the other hand, there is the company’s operational resilience, the lean into margin improvement, and cash flow growth in the face of revenue declines and aggressive share repurchases. The first may keep the market from setting a new high soon, but the second sets it up for a new high after new high when end-market normalization occurs. 

Because the FOMC signaled a shift in its policy stance and end-markets such as communications are expected to normalize in 2024, the odds are high that the company’s guidance will improve as the year progresses and lead the market to a new high in 2024 if not before the end of this year. 

Jabil, Inc. has a better-than-expected quarter

Jabil, Inc. had a better-than-expected quarter after guiding to weakness at the end of last fiscal year. The company brought in $8.4 billion in net revenue for a decline of -12.9% but beat the consensus estimate by 50 basis points. Electronics Manufacturing Services fell hardest, about 21%, while Diversified Manufacturing Services contracted by 6%. Regarding end markets, 4 of the 7 end markets contracted, with strength seen in the Auto, Industrial and Healthcare markets. Areas of weakness include communications but also digital printing, retail, networking, the cloud and connected devices. 

The margin news is the best of the report. The gross and adjusted operating margin improved compared to last year, leaving the adjusted operating margin up 60 bps on a full-year basis. The GAAP earnings contracted due to one-offs and non-cash impairments, but the adjusted income and earnings are up compared to the prior year. Adjusted earnings came in at $2.60 or $0.02 better than the Marketbeat.com consensus and are up 12% compared to the 13% top-line decline. 

The company expects two things for the quarter and the year. The first is that revenue will decline from the previous year, and the 2nd is that the margin will widen. The salient point is that the full-year guidance aligns with the consensus estimates at the low end of the expected range and may be cautious. The company expects at least $9.00 in adjusted earnings; the analysts expect about $9.05 at the consensus. 

Analysts love Jabil’s capital returns

Jabil’s ability to generate cash flow growth in the face of revenue declines is one reason analysts like this stock. Another is its share repurchase program, which is substantial. The company repurchased $500 million in shares during the quarter, bringing the count down nearly 4% YOY. Repurchases are expected to accelerate in 2024, bringing the share count down another 8%, and unlikely to end soon.

Analysts' activity has this stock ranked in the #1 position on Marketbeat’s Top Rated Strong Buy stocks. The stock scores 3.14 out of 4, is rated a Buy, and has upward pressure in the consensus target. The only issue is that the consensus lags the market and may present a hurdle. However, most recent targets are well above consensus and suggest the uptrend in stock prices will continue and may gain as much as 20%. 

The technical outlook: Jabil is in consolidation

Jabil entered correction after the FQ4 release in September but is now in a consolidation move. The Q1 results have the market rebounding within a range at the top of a strong rally, where it could produce a continuation signal. Critical support is near $114.50, critical resistance near the all-time high, a break of either significant. It could move to the $100 level or lower if the market breaks support. A move to the upside should take the market into the $160 region.