Jabil Descends Into A Buying Opportunity
Jabil Circuit (NYSE:JBL) reported a mixed bag of results and outlook for the Q4 and Q1 period sending shares down 10% from their recent high. As mixed as the news is, it is the guidance that really counts and the guidance is positive. The company is expecting sequential growth in a range that puts the consensus estimate below the midpoint for both revenue and earnings. This has sparked activity in the analyst community that we see driving share prices back up to their recent highs and higher.
Jabil Falls In Knee Jerk Reaction To Results
Jabil Inc. had a great quarter if one that came in slightly below the consensus estimates. The company's $7.40 billion in consolidated revenue is up 1.4% over last year but missed the consensus by 350 basis points. Last year the company’s revenue grew roughly 11.5% so any growth this year is good growth in our opinion. On a 2-year basis, revenue is up 12% driven by strength in the diversified manufacturing services sector. Revenue in the diversified manufacturing services sector is up 10% while the electronics manufacturing segment is down 6% from last year.
Moving down to the earnings portion of the report, the results are equally mixed. The company reported a contraction in the gross margin of 120 basis points and an expansion of the operating margin of 33 basis points to deliver GAAP earnings exactly as expected. On an adjusted basis, the $1.44 in earnings beat the consensus by $0.06 on a slightly stronger than expected margin. Looking forward, the company is expecting earnings in the range of $1.70 to $1.90 versus the consensus of $1.74 and we see some risk in the outlook. If Jabil, and the economy at large, can overcome systemic challenges revenue and earnings should come in at the high end of the range or higher. If not, the company could produce results at the low end of the range for lower.
The Analysts Like What They See In Jabil’s Results
As cloudy as the outlook is, the analysts see risk to the upside. At least three sell-side analysts have come out in the wake of the report to upgrade the stock or raise the price target or both. Of those three we've got two improved ratings from Neutral or In-Line to Buy and one Strong Buy with an increased price target. The two upgrades also increased their price targets to a consensus of $76 versus the broader Market beat.com consensus of $62. The freshly set high price target of $90 assumes more than 57% upside for the stock and this is, notably, the first significant analyst activity in this stock all year so could mark a major turning point for price action.
The Technical Outlook: Jabil Is Trending Higher
The post-release drop in share prices was a shock for investors we're sure but the trend in price action is still bullish. Price action hit support at the 150-day moving average, bounced, and is moving higher in premarket action now. Assuming the market follows through on this action we see price action consolidating at this level before moving higher. Our target for resistance is near $62.50. If the market can get above this level we see shares of Jabil moving up to the $70 to $80 range fairly quickly.
