When the markets that your business serves are improving or growing, or both, that's good. When you can take business away from your rivals, that's good, too. When you can do both, well, that's really good. And that would seem to be the story at JabilCircuit (NYSE:JBL) these days.
Business for the company's first quarter was certainly looking a bit brighter. Sales were up 31%, operating income was up 26%, and net income was up 38%. What makes that a bit more impressive is that the year-ago numbers weren't all that bad -- so this is strength upon strength, and not just a recovery from an awful year-ago period.
What I don't like so much is the "core earnings" junk that Jabil offers up. Basically, these are non-generally accepted accounting principles measures that exclude the amortization of intangibles, stock-based compensation, and other expenses. And of course, this makes the earnings look better. I don't completely blame the company, though, because the analyst community seems to aid and abet this nonsense as well.
Putting that aside, I think there are some meaningful positive factors in play for Jabil. From where I sit, it appears that big outsourcing client companies such as IBM (NYSE:IBM), Nokia (NYSE:NOK), Philips (NYSE:PHG), and Cisco (NASDAQ:CSCO) are beginning to look to consolidate more business with a smaller number of manufacturing companies. That could mean more opportunity for Jabil to capture market share.
What's more, I like the fact that this company is relatively diversified. Jabil gets more of its revenue from consumer-oriented products than any other EMS company and isn't as dependent upon networking and communications as the likes of Solectron (NYSE:SLR) or Celestica. While Jabil isn't the only company to have three or more segments contributing 20% or more of revenue (Flextronics (NASDAQ:FLEX), Sanmina-SCI, and Solectron do as well), it does have better leverage to non-tech areas like consumer goods, medical, and industrial applications than most other players.
When it comes to valuation, I'm inclined to be harsh on this company because it doesn't have quite as much ability to affect demand as its clients do. Still, even with some "harsh" assumptions, the valuation comes out looking pretty interesting. All in all, I'd say this company is worth further due diligence for investors who expect demand for all manner of electronics to stay healthy.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
