This Survivor Stock Deserves a Second Look

As explained by analysts at Collins Stewart earlier this week, Jabil Circuit (NYSE: JBL  ) sure does feel a pinch from the pains and missteps over at megacustomer Research In Motion (Nasdaq: RIMM  ) . Also as expected, a generous helping of top-line trouble hardly hurts the bottom line at all under Jabil's high-volume but low-margin operating model.

Walking through the damage
The manufacturer of electronic gadgets and systems explained that its high velocity segment -- that is, the even-higher volume stuff, mostly consumer products -- will see 13% lower sales next quarter on a sequential basis. Why? It's "solely as a result of the late new product introductions and eroding demand from a major Mobility customer."

Yep, we know exactly who you're talking about. So 13% lower sales in that segment translates into about $170 million of lost revenue, easily in the ballpark of Collins Stewart's $150 million estimate. And with a 2.2% operating margin in that division, we're looking at about $3.8 million in missed operating income or roughly $3.1 million after applying a 17% tax rate. That's $0.015 per diluted share -- and both revenue and earnings guidance still matched Street estimates.

No great harm has been done here by RIM's late products and eroding demand, and you should expect fellow RIM manufacturers Flextronics (Nasdaq: FLEX  ) and Celestica (NYSE: CLS  ) to report similar non-impacts about a month from now.

Just the numbers, please
Canadian shenanigans aside, how is Jabil's business doing? Just fine, thank you very much.

Third-quarter GAAP earnings doubled year-over-year to $0.47 per share and adjusted earnings beat analyst estimates by a penny. Sales jumped 22%, again landing slightly above Street targets. And like I said, the next-quarter outlook isn't terrible despite the RIM situation and continued fallout from the Japanese natural disasters in March. As CEO Tim Main stated:

I'm actually pretty pleased that we can get a very, very short-term air pocket and continue to put up 4.2% operating margins. And we've had Japan, we've had the acquisition of the sites in France and Italy, we've had some near-term disruptions from the High Velocity segment, and then the company is still turning pretty good numbers. So I'm actually pretty pleased with it.

Should I learn more about Jabil? (Spoiler: Yes!)
Jabil remains a high-quality business with many attributes worthy of an investor's love (or at least our attention):

  • Revenue growth has restarted after a couple of lean years.
  • As shown by dramatically higher returns on capital, assets, and equity, Jabil has found a highly efficient groove.
  • Insiders own a healthy 10% stake in their own company, including 6.6% held by Chairman Bill Morean. In other words, the people running the company have their goals tightly aligned with the goals of common shareholders.
  • The customer list is both impressive and diversified. Though Jabil's two largest clients are RIM and equally troubled networking giant Cisco Systems (Nasdaq: CSCO  ) , their weakness is balanced out by downright flourishing customers like Apple (Nasdaq: AAPL  ) , NetApp (Nasdaq: NTAP  ) , and IBM (NYSE: IBM  ) . This bodes well for future business, with major patrons spread out across sectors and industries.

Given all this goodness, Jabil surely belongs on your Foolish watchlist at the very least. I have gone a step further and made Jabil a profitable thumbs-up pick in my all-star CAPS portfolio, and you can follow my lead by clicking here. You can also find seven fine stocks to watch or own in this article, which also explains why the latest Wall Street fad shouldn't matter to serious investors.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of International Business Machines and Apple. The Fool has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Cisco Systems and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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