Now Is a Good Time to Take a Look at This Apple Supplier

Electronics manufacturing services provider Jabil Circuit (NYSE: JBL  ) has been on a decline since it reported disappointing fourth-quarter earnings in September. Jabil was selected as the manufacturing partner by BlackBerry (NASDAQ: BBRY  ) for its BlackBerry 10 devices, but their failure weighed on Jabil's performance. Jabil management stated that there was ""a strong possibility of disengaging with BlackBerry," and this was the reason behind the company's tepid outlook.  

Trading one fruit for another...and getting a better deal
However, it won't be surprising if Jabil turns its fortunes around with a strong quarterly report later this month. While Jabil's BlackBerry business was declining, the company landed a lucrative client in the form of Apple (NASDAQ: AAPL  ) , which accounted for almost 20% of revenue last quarter.  

Jabil manufactured the aluminum casing for the iPhone 5 last year, leading to tremendous growth in its diversified manufacturing services (DMS) segment. This particular segment now accounts for close to half of Jabil's overall revenue and could help the company issue a solid outlook when it reports earnings next time.

Apple's iPhone sales were huge last quarter. Apple sold 33.8 million iPhones in the quarter ended September, and it looks like that the company is on course to create another record this holiday season.

According to The Wall Street Journal, Apple contractor Foxconn is producing half a million iPhones daily, which is the highest output rate ever. Despite going on sale in late September, supply of the iPhone 5s finally caught up with demand just this month, indicating great demand. Moreover, Canaccord Genuity analyst Michael Walkley is of the opinion that Apple could sell as many as 52 million iPhones in the current quarter. 

A temporary pain
Thus, Jabil could expect greater demand from Apple in the holiday quarter. This should help Jabil overcome BlackBerry's declining business. BlackBerry was 12% of Jabil's revenue last quarter, but management is now looking to wind down its relationship with the struggling smartphone maker. 

Last quarter, BlackBerry management stated that the company is now planning to focus on the enterprise business, gradually moving away from the consumer electronics space. The latest BlackBerry 10 phones haven't been successful as they saw high return rates by customers.  

The end of this relationship, no doubt, will have an impact on Jabil's business. It had to reduce its earnings guidance for fiscal 2014 to $2.48 a share from $2.77 per share as a result of BlackBerry's woes. But as Fool analyst Sean Williams writes, "(Jabil) is a diversified cash-generating machine that will be fine in the long run, even if its BlackBerry partnership ends." This statement is right on the money, as Jabil also has the enterprise and infrastructure business to fall back on.

The enterprise and infrastructure segment, which accounted for 30% of revenue in the last-reported quarter, was up 9% in fiscal 2013. This segment can be expected to perform well going forward, driven by the rollout of 4G LTE networks and data centers. Telecom carriers such as AT&T and Sprint are aggressively rolling out their LTE networks. As such, Jabil expects revenue from this segment to remain healthy in the current fiscal year.

Some solid numbers
Jabil's BlackBerry business might be on a decline, but the company is seeing strength in other segments. As such, it was able to post record results in the previous fiscal year despite weakness at BlackBerry. Jabil's revenue was up 6% to $18.3 billion and operating cash flow came in at more than $1 billion.Looking ahead, higher demand from Apple and strength in enterprise and infrastructure spending should help Jabil perform even better.

Also, Jabil is pretty cheap right now. It trades at just 11 times trailing earnings, way cheaper than peers such as Sanmina (16x earnings) and Flextronics (28x earnings). Moreover, it has a PEG ratio of just 0.79, indicating that the stock is undervalued. Hence, Jabil Circuit looks like a value play at current levels, which is why investors should definitely take a closer look at it.

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