Jabil's (JBL 1.15%) terrific stock market rally came to a halt at the end of September. Apparently, the company's fiscal 2021 fourth-quarter results didn't pass muster. Though Jabil delivered a sharp rise in earnings and crushed Wall Street's bottom-line estimate, its revenue growth wasn't as strong as expected. This was enough for investors to hit the sell button and book profits on Jabil stock, which has delivered impressive upside in the past year.
This post-earnings pullback may offer an opportunity for investors looking to buy a solid company on the cheap. After all, Jabil has bright long-term prospects, and its outlook for the new fiscal year indicates that it is about to step on the gas. Let's look at the reasons why it makes sense to buy this contract electronics manufacturer right away.
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Jabil is about to get better
Jabil finished fiscal 2021 with $29.3 billion in revenue, up 7.3% from the prior year. The company's adjusted core operating income shot up to $1.24 billion from $864 million last year, while core earnings per share increased to $5.61 in fiscal 2021 from $2.90 a year ago. It is worth noting that Jabil's results comfortably exceeded the company's original expectation of $27.5 billion in revenue and $4.60 per share in core earnings.
Jabil enjoyed growth across several segments last year, including automotive, healthcare, mobility, and connected devices. These verticals form a part of Jabil's diversified manufacturing services (DMS) business, which accounted for 52.5% of total revenue last quarter. What's more, the DMS business' core operating margin was up 1.1 percentage points over fiscal 2020 to 3.7%, while the segment's revenue increased nearly 17% thanks to strength in the healthcare, automotive, and mobility verticals.
Jabil's guidance indicates that the DMS segment will continue getting better. The company forecasts a 10% year-over-year increase in DMS revenue to $4.7 billion this quarter, while overall revenue is expected at $8.3 billion at the midpoint of its guidance range. Jabil delivered $7.8 billion in revenue in the prior-year period, which means that its top line is on track to increase in the mid-single-digits this quarter.
Jabil's core diluted earnings of $1.80 per share would translate into a 12.5% year-over-year increase. The full-year outlook is also robust, with the company anticipating 4.5% in core margin, $700 million in free cash flow, and $6.35 per share in core earnings per share, which would be a 13% increase over last year. Its fiscal 2022 top-line estimate of $31.5 billion points toward a 7.5% year-over-year increase.
However, it wouldn't be surprising to see Jabil bump up its expectations as the year progresses -- as it did last year -- on the back of improving end-market prospects. Let's see why that may be the case.
Why the company could switch into higher gear
Apple (AAPL +0.11%) is one of Jabil's largest customers, accounting for 20% of the company's fiscal 2020 revenue. Apple sources the casings used in iPhones and iPads from Jabil, which is why the contract electronics manufacturer saw robust momentum in the mobility business last quarter.
The good news for Jabil is that Apple's latest iPhone 13 models are seeing hot demand, which has reportedly led to suppliers prioritizing the production of the new iPhones over other models from Samsung or Chinese OEMs (original equipment manufacturers). As mobility accounted for 14.3% of Jabil's total revenue last fiscal year, it could move the needle substantially for the company.
As iPhone shipments are expected to move north in the coming years, Jabil's relationship with Apple should remain a tailwind. And this is not the only fast-growing trend Jabil is on track to take advantage of. The company's revenue from the automotive and transportation business jumped 29% in fiscal 2021, a trend that's likely to continue as Jabil focuses on electric vehicles, autonomous cars, and connected cars -- all of which are rapidly growing niches.
The deployment of 5G infrastructure and the growing adoption of cloud computing are other notable tailwinds for Jabil that should ensure long-term growth for the company. All of this indicates why Jabil's earnings estimates for the current and future fiscal years have moved north of late.
JBL EPS estimates for current fiscal year data by YCharts
Finally, with the stock trading at 12.9 times trailing earnings and 10 times forward earnings, both of which represent huge discounts to Jabil's five-year average price-to-earnings multiple of nearly 40, buying this tech stock right now seems like a no-brainer given the double-digit percentage annual earnings growth it is expected to clock over the next five years.
