Jabil Stock Implodes: Market Manufactures Entry for New Money

Key Points

• Jabil Inc. had a weak quarter following the sale of its mobility business, but margin and cash flow remain solid. 
• Capital returns are reducing the share count quickly, building leverage for investors. 
• Analysts support the market but may cap gains in the near term. 

Jabil Inc. NYSE: JBL stock price is down 10% in early trading, extending a decline that began before the Q2 release and may fall further. However, the decline is due more to market mechanics than the results or outlook, setting this market up to resume its trend soon. The analysts are bullish and raised price targets ahead of the report, but the market had a front-run trend. Now, with shares down 10%, the market has realigned with the trend, and the outlook for share prices is stabilizing. 

Among the takeaways from the report are margin and free cash flow, which remains robust. Cash flow allows for substantial capital returns, which, for this company, are primarily share repurchases. The dividend is a token to keep income-oriented funds in the mix, but the share repurchases are substantial. Repurchases reduced the Q2 comparison by nearly 7% and should continue in 2024. 

Not only is the margin expected to remain solid, but the sale of Jabil's mobility business has also improved its cash position. Cash is up 42% year-over-year (YoY), and the company is in the leanest operating shape in years, with additional improvement anticipated. 

Why Did Jabil Revenue Contract in Q2? 

Jabil had a solid quarter in Q2 despite the sale of its Mobility Business. Weakening results were expected, but the problem is that the 16.7% decline in revenue is less than forecasted and missed the analyst consensus by 230 basis points. Top-line weakness was offset by margin strength, but it was not enough to sustain the Apple Inc. NASDAQ: AAPL supplier's stock price. 

Gross margin expanded by 120 bps to offset higher costs and restructuring expenses, leaving GAAP and adjusted earnings in better shape than revenue. The adjusted earnings are down 10.5% compared to last year, declining less than revenue and meeting consensus despite the top-line weakness. 

Guidance is the detail that has the market down by 10%. The guidance for Q3 and the FY is below consensus, causing analysts to reset their expectations. This is terrible news for the stock today, but the long-term outlook remains positive, with growth expected to return in F2025. Because the long-term outlook includes an AI-driven upgrade cycle that could last for decades, the company is well-positioned to grow in the coming years. 

Does Jabil Have Sell-Side Suport? 

Jabil has solid sell-side support despite analysts resetting their price targets. The stock is rated as a firm "buy," and its price target has increased by nearly 100% over the last year. Institutions also favor the stock, owning about 93% of the shares. Activity spiked in Q1 and includes significant rotation, but buying balances the sales in the quarter. With shares now discounted, institutional activity may shift back to net-buying again. 

Insider selling may become an issue, but no significant red flags exist. Selling spiked in Q4 and Q1 2024, but because sales are small and share prices were at record highs, the activity can be written off as opportunistic. Insiders still own about 2.6% of the shares. 

What is the Technical Outlook for Jabil Stock? 

The technical outlook for Jabil stock is mixed with near-term activity bearish, but the long-term trend is intact. 

The takeaway from early trading is that investors buy the dip, showing support above the 150-day moving average. Assuming this level sustains support, the price action should begin to drift higher soon as it has done in the past. In this scenario, shares of Jabil could gain 15% to 20% to align with the analysts' consensus target. If support at the 150-day EMA fails, this tech stock could be in for a much more significant correction, but that is unexpected.