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If you want to take advantage of this year’s brutal selloff in tech stocks and buy shares of a strong company on the cheap, then Jabil (JBL 1.85%) It should be on your radar.
The contract electronics manufacturer released an impressive set of results on September 27.
Jabil’s guidance was also better than analysts expected. Let’s take a look at what’s driving Jabil’s growth and see if it can maintain its healthy growth momentum.
Jabil will complete the 2022 budget on a high note
Jabil’s fiscal Q4 revenue rose 22 percent year-over-year to $9.03 billion, easily clearing the consensus estimate of $8.39 billion. The company’s revenue growth was driven by strong demand in its electronics manufacturing services (EMS) business. Jabil’s EMS segment serves end markets such as network and storage, 5G wireless infrastructure and cloud computing, industrial and semiconductor capital equipment, and retailers.
The Diversified Manufacturing Services (DMS) segment posted a 13% year-over-year revenue growth driven by growth in automotive and transportation, healthcare and related equipment.
Jabil’s adjusted earnings rose 62% to $2.34 per share last quarter, while the company’s non-GAAP operating margin increased to 5% from 4.2% a year ago. The company’s full-year revenue rose 14 percent to $33.5 billion, while adjusted earnings per share rose 36 percent to $7.65. Jabil’s core operating margin increased to 4.6 percent in 2022 from 4.2 percent.
He sees both the top and bottom lines moving higher in fiscal 2023, despite what he calls “moderate economic slowdown and some modest growth, which will affect certain end markets more than others.” The company has guided for adjusted earnings per share of 8.15 in fiscal 2023, with non-GAAP operating margin expected to expand to 4.8 percent. Jabil is estimated to generate $34.5 billion in revenue this year.
The full-year forecast may not look attractive, as the top and bottom lines point to single-digit percentage increases. However, investors should keep in mind that Jabil is guiding conservatively by forecasting revenue of $31.5 billion in early fiscal 2022 and earnings per share of $6.35 per share for the year. But healthy demand for contract manufacturing services has led to stronger growth, and it’s no surprise that the same will happen in fiscal 2023, given the vast growth opportunities the company has lined up.
Stronger-than-expected growth may be in the cards again.
Jabil has seen impressive growth in several end markets over the past few years. For example, the company’s automotive and transportation revenue has grown 121 percent over the past five fiscal years.
In fiscal 2022, the auto and transportation segment generated $3.1 billion in revenue, up 41 percent from last year. Jabil expects the segment’s revenue to grow 29 percent to $4 billion this fiscal year. However, it is worth noting that Jabil sees a total market opportunity worth $229 billion as it continues to develop electric vehicles, connected cars and self-driving functions.
Similarly, the 5G wireless and cloud infrastructure markets represent a potential $88 billion market for the company. The segment’s revenue has grown 150% over the past five fiscal years, and there’s room for strong growth here, as Jabil’s revenue is projected to reach $6.5 billion in fiscal 2022. So it’s no wonder why analysts expect earnings to grow at an annualized rate of 13 percent over the next five years.
Jabil, however, can grow rapidly given the amount of opportunities it is introducing. Moreover, Jabil is trading at 10 times trailing earnings and just 0.26 times sales. These are good deals S&P 500Earnings multiple of 18 and sales multiple of 2.26. That’s why investors looking to buy a value stock that can offer a healthy start to the future should consider buying Jabil at a premium given its cheap valuation and strong growth potential.
Harsh Chauhan has no position in the said stocks. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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