Strong Tailwinds Drive Jabil To New Highs

Demand For Semis Drives Jabil Higher 

The supply and demand scenario is tilted strongly in favor of semiconductor and circuit makers like Jabil (NYSE:JBL). If there is any doubt that the semiconductor market is in good shape for 2021 let us put that to rest now. The demand is so great that automakers like GM are curbing production and the situation is not limited to cars. Demand for products across many market verticals is so high that manufacturers are struggling to keep the shelves filled. Because so many products these days include a semiconductor or circuit board the market for Jabil products is vast and needy. 

Jabil Leverages Revenue Growth To Profits 

Jabil had a great quarter on many fronts but not all the news is good. While strength in the Diversified Manufacturing segment was enough to drive the company to 11.46% YOY growth it was offset by weakness in the Electronics Manufacturing segment. DMS revenue grew by 26% on a YOY basis helping to drive the $6.83 billion in net revenue well above the consensus, Electronics Manufacturing shrank by 1.0%. As for the analysis, the consensus of $6.57 billion is about 400 basis points below the actual and the forward consensus is lagging as well. 

“Our second-quarter performance was outstanding,” said CEO Mark Mondello. “The combination of broad end-market strength, more favorable product mix, and excellent operational execution by the team allowed us to deliver $285 million in core operating income on revenue of $6.8 billion,”

Moving down the report, the company's margins widened as well, gaining 130 basis points, to drive a solid beat on the bottom line. The GAAP $0.99 beat consensus by $0.23 while the adjusted $1.27 beat by $0.32. The strength in both revenue and earnings led the company to increase the guidance for the second time this year and to a range well above the current consensus. The takeaway here is the analysts will have to up their targets for earnings if not share prices and underlying rating which will be a significant tailwind for share prices. 

“I’m extremely confident in our plan moving forward, which is supported by both strong secular tailwinds and accelerated momentum in many of the end-markets we serve. As a result, we are raising our financial outlook for the balance of the year. We now expect FY21 to deliver revenue in the range of $28.5 billion and core EPS of approximately $5,” added Mondello.

Jabil Is A Deep-Value Dividend Payer 

Jabil is not a dividend grower but it is a very stable payer albeit one with a low 0.60% yield. The upshot is the company has a well-established history of paying, a strong balance sheet, and ample/growing cash flow so there is no worry of a cut. Regarding the value, Jabil is trading at only 10X its earnings which is low no matter how you look at it. Other manufacturing services companies (not semiconductor services) trade at 12X earnings, the average microchip pureplay is trading in the range of 14X for Intel and upwards of 18X and 42X times for names like Micron and Advanced Micro Devices. KLA Corporation, a semiconductor services and equipment manufacturer, trades at 22X its earnings. 

The Technical Outlook: The Rebound Accelerates For Jabil 

Shares of JBL have staged a strong recovery from the 2020 lows and are still gaining momentum. The FQ2 report has shares up more than 5.0% in early trading and trading at a new multi-year high. Assuming today's candle closes green and with MACD on the rise we see this stock continuing higher in the near to short-term at least.  The caveat for investors is that price action is well above the short-term EMA so waiting for a price weakness, a pullback, or consolidation before committing large sums is the safest strategy.