Is Jabil The Best Stock To Play iPhone 12 Cycle Without Overpaying?

Jabil (NYSE: JBL),  a manufacturing services company that counts Apple as its largest customer, has seen its stock price rise by over 80% since late 2018, while surging almost 2.5x from its March 2020 lows. The recent gains have been driven by strong demand for Apple’s new iPhones, and robust Q1 FY’21 earnings (FY ends August 31) which saw the company post record Revenues and close to 50% year-over-year growth in its adjusted EPS. So are further gains in the cards for Jabil stock or could it be posed for a correction? In this analysis, we take a look at the company’s historical financial performance and its outlook to see if Jabil remains a good pick. See our analysis What has driven Jabil stock’s 80% Price Gains Since 2018? for more details on how Jabil’s fundamental and valuation metrics have trended in recent years.

What Has Driven Jabil’s Stock In Recent Years?

Jabil provides electronics design, production, and product management services to companies in various industries and end-markets. Let’s take a look at some of the underlying financial trends that have driven Jabil’s stock since 2018. Total Revenues have increased from levels of around $22 billion in FY’18 to about $27.6 billion over the last 12 months, driven by strong growth in business from cloud computing and the healthcare space. However, Jabil’s Adjusted Net Margins declined slightly from about 2.1% in 2018 to about 1.9% over the last 12 months. While Adjusted Net Income grew from around $459 million in 2018 to $531 million over the last twelve months, an increase of about 16%, Adjusted EPS grew faster, at 32% to $3.45, driven partly by share repurchases. The markets have also valued Jabil more richly, with its P/E multiple, based on trailing earnings, expanding from around 9.5x in 2018 to about 13x in 2020, driven by higher valuations for equities, in general, and anticipation of stronger growth from Jabil.

Is Jabil Stock Good Value? 

Although Jabil’s business is inherently low margin, with the company relying on volumes to drive earnings, its large scale (100 facilities in 29 countries) and know-how help it to lock in large customers. Jabil already counts Apple as its largest customer (20% of total Revenue), manufacturing casings for iPhones and iPad, and the company’s business from Amazon has also been growing (10% of total Revenue in 2020). (See our theme on Apple Component Supplier Stocks which includes a diverse set of companies that supply components for iPhones and other Apple devices) The market for electronic manufacturing services is also poised to expand, with the increasing digitization of the economy and rising demand for consumer electronics products through and post Covid-19, providing a tailwind for Jabil. While the company’s revenue growth rate over 2021 is likely to slow down to an extent, due to a shift in the business model for its 5G, wireless, and cloud business, which will transition from a purchase and resale model to a consignment model, earnings are poised to expand. Jabil has guided to an Adjusted EPS of about $4.60 per share for FY’21, translating into a P/E multiple of roughly 10x based on the current share price of around $46. The relatively reasonable valuation and scope for earnings growth should give the stock more room for appreciation in the medium term.

While Jabil stock looks like good value, 2020 has also created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Apple vs Microsoft. Another example is Intel vs Cisco.

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