Shares of electronics manufacturer Jabil (JBL -0.18%) have almost doubled so far this year, rising more than 96% as of this writing. The reason why the company has been able to deliver such a terrific upside is because of its consistently solid results, which have been exceeding Wall Street's expectations.
For example, Jabil stock shot up almost 20% on Sept. 28 after the company released fiscal 2023 fourth-quarter results (for the three months ended Aug. 31), reporting stronger-than-expected earnings and issuing solid guidance. Let's take a closer look at Jabil's business and check what has caused this tech stock to surge so much this year.
Consistent earnings growth has bolstered the stock
Jabil reported fiscal 2023 revenue of $34.7 billion, up just 3.6% from the prior year. The slow rate of revenue growth can be attributed to the challenges Jabil faced in the connected devices business, where its revenue fell 15% year over year to $4 billion. Jabil blamed soft demand on account of weak consumer goods spending for the weakness in this segment, and it also pointed out that it expects "another year of market contraction for the coming year."
However, the diversified nature of Jabil's business, which allows it to serve fast-growing areas such as electric vehicles (EVs), healthcare, semiconductor equipment, and AI-focused cloud data centers, helped drive an improvement in the company's margins. As a result, Jabil finished fiscal 2023 with a 13% year-over-year increase in earnings per share to $8.63, easily outpacing the growth in its top line.
The company's guidance for the current quarter suggests that it is on track to deliver another quarter of double-digit earnings growth. Jabil expects $2.60 per share in non-GAAP earnings in the current quarter at the midpoint of its guidance range, which would be a 13% improvement over the year-ago period. Even better, analysts are forecasting an 11% increase in the company's bottom line for the full year to $9.55 per share.
But don't be surprised to see it deliver stronger growth as it reconfigures its business toward fast-growing niches. Jabil has decided to divest its mobility business to BYD Electronics in a deal worth $2.2 billion. The company is making this move to quickly expand its presence in other areas that could turn out to be more lucrative in the long run. The company generated $4 billion in revenue from the mobility business last fiscal year, an increase of just 3% over the prior year.
This divestiture seems to make sense considering that Jabil is witnessing much stronger growth in other areas such as auto and transportation, where it recorded a 42% revenue jump last year to $4.4 billion. Similarly, the healthcare and industrial businesses also recorded 12% and 10% growth, respectively, and generated a combined $10 billion in revenue.
Jabil estimates that the divestiture will enable it to improve its core operating margin to a range of 5.3% to 5.5% in the current fiscal year from 5% in fiscal 2023. By fiscal 2025, Jabil is forecasting its core operating margin to exceed 5.6%, leading to adjusted earnings of $10.74 per share. Even better, analysts expect Jabil's earnings to head higher in fiscal 2026 as well.
JBL EPS Estimates for Current Fiscal Year data by YCharts
The valuation makes Jabil stock a no-brainer
Even though shares of Jabil have shot up remarkably in 2023, they are trading at a mouthwatering valuation. The stock has a price-to-earnings ratio of just 22, which is a nice discount to its five-year average trailing earnings multiple of 30. Meanwhile, the forward earnings multiple of 11 points toward a nice jump in the company's bottom line, and the discussion in the previous section tells us just why that's likely to be the case.
Now, the chart above suggests that Jabil's earnings could grow to $11.72 per share in fiscal 2026. Assuming the company maintains its current earnings multiple of 22 at that time, its stock price could jump to $258. That would be a 92% increase from current levels, indicating that this tech stock is built for more upside over the next three years.
That's why investors would do well to buy Jabil while it is still cheap and take advantage of the potential earnings growth and stock price upside the company has to offer.
