Shares of contract electronics manufacturer Jabil (JBL -1.18%) have rallied impressively over the past six months and defied the broader stock market downturn -- gaining over 26% while the S&P 500 index has dropped around 2% over the same period -- and it looks like the company is all set to sustain its impressive momentum in the new year and beyond.
Jabil released terrific results for the first quarter of fiscal 2023 (for the three months ended Nov. 30, 2022) on Dec. 15. The company -- which counts Apple (AAPL 0.19%) as its largest customer -- not only beat Wall Street's expectations handsomely, but also raised its full-year earnings guidance. Let's take a closer look at Jabil's results and check why it may be a good idea to buy the stock hand over fist right now.
The new year is going to be a good one for Jabil
Jabil reported fiscal Q1 revenue of $9.6 billion, an increase of 12% over the prior-year period. The company's double-digit growth was driven by an improvement in both the diversified manufacturing services (DMS) and electronics manufacturing services (EMS) segments. More specifically, Jabil saw healthy revenue jumps in the automotive, healthcare, and industrial end markets, which allowed it to offset weakness in other areas such as mobility, which was hamstrung by operational problems in China.
The company's adjusted earnings increased 20% year over year to $2.31 per share. Jabil now anticipates adjusted earnings of $8.40 per share in fiscal 2023, up from its prior outlook of $8.15 per share at the beginning of the fiscal year. The updated earnings guidance points toward a 10% jump over fiscal 2022's figure, though it won't be surprising to see Jabil deliver stronger earnings growth given the fast-growing niches that it is tapping.
For instance, Jabil anticipates 42% year-over-year growth in automotive revenue this year to $4.4 billion. The segment would account for almost 13% of its top line. Jabil credits the transition toward electric vehicles (EVs) for the rapid growth in the automotive business, as the company supplies charging and power technology for this market. It is also worth noting that Jabil powers other automotive functions as well, such as advanced driver assistance system (ADAS) modules and connectivity applications.
So, Jabil is on track to benefit from multiple secular growth opportunities in the automotive market in 2023 and beyond. Meanwhile, healthcare and industrial businesses are expected to benefit from the outsourcing of manufacturing and the adoption of clean energy infrastructure. Also, Jabil sees the growing deployment of 5G networks in new markets such as India as a tailwind going into 2023.
Apple could be another catalyst in 2023
Jabil's mobility business wasn't in great shape last quarter thanks to COVID-related shutdowns in China, which reportedly hurt Apple's iPhone production. It is estimated that Apple may be forced to reduce the production of its iPhones to a range of 70 million units to 80 million units in the December quarter, down from the earlier expectation of 90 million units.
This doesn't bode well for Jabil as it manufactures casings for multiple Apple devices, including the iPhone. In fact, Apple is Jabil's largest customer and accounted for 19% of its revenue last fiscal year. The good part is that Jabil has raised its earnings guidance despite the challenges that its largest customer is facing. However, there are a couple of reasons why Apple's fortunes may improve in 2023 and positively impact Jabil's performance.
First, Apple is expected to make more iPhones next year. IDC estimates 233.5 million iPhones may be shipped in 2023. That would be an improvement over this year's estimate of 220 million, though it won't be surprising if Apple manufactures a lower number thanks to recent headwinds. So, a potential increase in iPhone production should ideally translate into stronger revenue for Jabil and help turn its mobility business around.
Meanwhile, Apple's potential addition of another product to its lineup in the form of a mixed-reality headset could give Jabil another boost. Supply chain rumors suggest that Apple may manufacture 500,000 units of its headset in 2023, and the number is likely to head higher in the future as the market expands. So, Jabil could get a new line of business from its largest customer in 2023, and that could help it record stronger growth than it is currently anticipating.
Buying Jabil stock is a no-brainer
Jabil stock is trading at 10 times trailing earnings. That represents a huge discount to the Nasdaq 100's trailing earnings multiple of almost 25 and the company's five-year average earnings multiple of 34.
Buying the stock at this valuation is a no-brainer considering the impressive growth in its revenue and earnings, which seems sustainable in the new year and beyond. After all, analysts expect Jabil to clock double-digit annual earnings growth for the next five years. All this makes Jabil a solid tech stock to buy right now as it looks all set to sustain the impressive momentum that it has gained on the market in recent months.
