Jabil (JBL -8.37%) went into its third-quarter earnings report earlier this month with multiple tailwinds at its back, and the contract electronics manufacturer didn't disappoint -- sales and earnings jumped impressively over the year-ago period.
The Apple (AAPL -1.22%) supplier easily crushed Wall Street's estimates and delivered better-than-expected guidance. What's more, Jabil's end markets indicate that its robust financial growth is here to stay, and that could help the stock deliver more upside after a strong rally in the first half of 2021.
Let's look at the factors driving Jabil's outstanding growth and see why it is a top tech stock to buy right now.
Jabil has switched into a higher gear
Jabil delivered fiscal 2021 third-quarter revenue of $7.2 billion, a 14% increase over the year-ago period on the back of robust demand from the mobility, cloud, connected devices, and semiconductor capital equipment segments. Adjusted earnings jumped to $1.30 per share from $0.37 per share last year, driven by better-than-expected margin growth.
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Jabil registered a core operating margin of 3.8% during the quarter, which was 30 basis points ahead of its expectations. The results were way better than analysts' expectations of earnings of $1.04 per share on revenue of $6.95 billion, and exceeded the higher end of Jabil's guidance range. Even better, Jabil's Q4 guidance indicates that its momentum is here to stay.
The company anticipates $7.3 billion to $7.9 billion in revenue this quarter, while adjusted earnings could fall between $1.25 and $1.45 per share thanks to a core operating margin of 3.8% to 4.3%. Wall Street was expecting Jabil to earn $1.17 per share on revenue of $6.95 billion. The company recorded adjusted earnings of $0.98 per share in the fourth quarter of fiscal 2020 on revenue of $7.3 billion, indicating that it is poised to deliver attractive growth once again.
What's more, Jabil has raised its full-year outlook once again. It now anticipates adjusted earnings of $5.50 per share for the full year on revenue of $29.5 billion. Jabil reported $2.90 per share in earnings in fiscal 2020. It was originally anticipating $26.5 billion to $27 billion in revenue and $4.00 per share in adjusted earnings for FY21 when the year began, but improving end-market conditions led to substantial growth in its expectations as the year progressed.
Better times ahead as end-market growth picks up
Jabil's diversified manufacturing services (DMS) did the heavy lifting last quarter. The segment, which produced half of the company's total revenue, recorded 21% year-over-year growth on the back of strong demand from the mobility, automotive, healthcare, and connected devices markets. Jabil expects the segment to record 16.6% revenue growth this fiscal year, and the core operating margin to increase one percentage point to 4.7%.
A closer look at the DMS growth drivers tells us that the company is built for long-term growth. In the mobility space, for instance, Apple will be a multi-year catalyst. Apple accounts for 20% of Jabil's revenue, procuring casings for the iPhone and the iPad from the contract electronics manufacturer. Sales of the iPhone have exploded in the 5G era, making Apple the top seller of 5G smartphones in the first quarter of 2021.
More importantly, Apple's future appears to be rosy. The 5G-enabled iPhones are expected to set a new sales record this year and sustain their momentum in 2022 as well, with the iPhone expected to capture 40% of the smartphone market's revenue share, according to Juniper Research. All in all, the bright prospects of Jabil's largest customer should rub off positively on the DMS business.
On the other hand, the electronics manufacturing services (EMS) segment, which accounts for the remainder of Jabil's revenue, should complement the double-digit percentage growth of the DMS business. That's because this business relies on fast-growing verticals such as 5G wireless infrastructure, cloud computing, networking, and the semiconductor capital equipment market for revenue.
Given all these tailwinds, it is not surprising that analysts expect Jabil's earnings to grow at almost 20% per year for the next five years, according to estimates compiled by Yahoo! Finance. Throw in the fact that Jabil is trading at just 14 times trailing earnings compared to the index's average of 25.5, and buying this growth stock right now looks like a no-brainer.
