Contract electronics manufacturer Jabil (JBL -0.77%) delivered solid results earlier this month for the second quarter of fiscal 2022 that comfortably crushed Wall Street's estimates. Jabil's stock price jumped nearly 10% following its earnings report as the robust demand for its offerings and the secular growth opportunities in its end markets pushed growth higher than expected. Jabil also raised its full-year guidance.
Investors were clearly pleased with the latest report, but was it strong enough in it to support a buy recommendation? Let's take a closer look at Jabil's numbers and see why it looks like a top tech stock to buy right now.
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Jabil's growth is gaining momentum
Jabil provides electronic manufacturing services and solutions for companies around the world. It focuses on supply chain design and engineering, electronics packaging, engineering solutions, and material sciences. The company works with numerous sectors and it has become known for making casings for Apple's (AAPL -0.58%) iPhones and iPads.
Jabil delivered Q2 revenue of $7.6 billion, a jump of 10.6% over the prior-year period. The company's adjusted earnings increased 32% year over year to $1.68 per share during the quarter. Analysts would have settled for just $1.47 per share in earnings on revenue of $7.4 billion. However, Jabil's presence in multiple lucrative verticals such as automotive, 5G wireless, networking, connected devices, healthcare, and industrial helped it record faster growth.
Management also credited an improvement in Jabil's product mix and the "exceptional execution" of its strategies for the strong showing during the quarter. More importantly, Jabil's outlook indicates that its momentum is sustainable. The company anticipates $8.2 billion in revenue this quarter along with adjusted earnings of $1.60 per share at the midpoint of its guidance range.
Those numbers would translate into a 14% year-over-year increase in revenue and a 23% increase in earnings per share. The company has also increased its full-year revenue forecast, and it now expects $7.25 per share in adjusted earnings on $32.6 billion in revenue. Jabil was originally anticipating full-year adjusted earnings of $6.35 per share on $31.5 billion in revenue at the beginning of the fiscal year.
It is worth noting that this is the second time that Jabil has raised its guidance this fiscal year, which points toward the favorable momentum in the company's end markets. A closer look at the factors driving Jabil's growth indicates that the company could continue to outpace expectations.
Multiple catalysts point toward better days ahead
I mentioned that Jabil makes casings that are used in Apple's iPhones and iPads. In fact, Apple is Jabil's largest customer, and it produced 22% of its total revenue in fiscal 2021. This relationship with Apple is going to be a tailwind for Jabil, as sales of iPhones are expected to head higher in 2022 and beyond.
That's because Apple has expanded its iPhone lineup with the addition of a budget-friendly 5G device in the form of the iPhone SE. This entry-level 5G iPhone can substantially increase Apple's addressable market, with analysts expecting the device to sell 30 million units in 2022. Additionally, noted Apple analyst Ming-Chi Kuo says that the company could launch a foldable iPhone in 2023, which would further increase its addressable market.
Moreover, Apple is reportedly working on headsets powered by augmented reality and virtual reality. So Jabil's manufacturing relationship with Apple could get stronger as the latter adds more products to its portfolio. This, however, is one of the many factors that could power Jabil higher in the future.
The automotive business, for instance, is scaling up nicely thanks to the growing adoption of electric vehicles, which is leading to strong demand for Jabil's manufacturing solutions used for making power and charging solutions. Jabil CFO Michael Dastoor said on the latest earnings conference call that the company is on track to record "revenue growth in excess of 50% this year alone in our automotive end market." More importantly, Jabil's automotive segment seems built for long-term growth as the electric vehicle market is expected to clock 24% annual growth through 2028.
These end-market opportunities indicate that Jabil is set up for solid long-term growth. That's why it looks like a good bet for investors looking to buy a growth stock on the cheap right now.
The valuation is the icing on the cake
Jabil trades at 11.5 times trailing earnings, which represents a big discount to its five-year average earnings multiple of 39. The stock's forward earnings multiple of 8.7 is also on the cheaper side as compared to the five-year multiple of 9.8.
What's more, Jabil stock trades at just 0.3 times sales. These multiples indicate that the stock is dirt cheap as compared to the S&P 500's trailing earnings multiple of 24.5, forward earnings multiple of 16.5, and a price-to-sales ratio of 2.95.
Given that Jabil's growth is all set to accelerate in the current quarter and its prospects point toward a healthy growth trajectory in the long run, buying this tech stock looks like a no-brainer right now, considering its enticing valuation.
