SANM Sanmina Corporation

Jabil Circuit Inc. (JBL) is scheduled to release its fiscal fourth quarter 2012 results after the closing bell on September 25, 2012. In the run up to the earnings results, we did not notice any substantial movement in analysts’ estimates for the quarter.

Prior Quarter Highlights

Jabil reported a tepid third quarter, wherein both top line and bottom line missed the Zacks Consensus Estimate due to sluggish end-market sales, particularly in the high-velocity segment. The company also suffered from weakness in the solar industry. Moreover, management had also provided a dismal outlook for the fourth quarter.

For further details please read: Jabil Misses in 3Q; Outlook Dismal

Estimates Revision Trend

Over the past 30 days, only one out of the six analysts covering the stock made a downward revision, while no upward revision was noticed. Thus, the Zacks Consensus Estimate for the fourth quarter dropped by a cent to 50 cents per share over the same period. Analysts’ estimates range from 44 cents to 53 cents.

Jabil has a paltry positive average earnings surprise of 0.29%, as it has failed to beat the Zacks Consensus Estimate in three out of the four preceding quarters. Analysts covering the stock expect a tepid quarter due to lower-than-expected iPhone sales and weakness from Research In Motion Ltd. (RIMM) to negatively impact the company’s top line.

Our Take  

Jabil is expected to benefit from strong growth in the Mobility, Aerospace and Defense, Healthcare, Instrumentation and Industrial, Clean Tech, Networking and Storage segments over the long term. Moreover, expansion of global business and strategic acquisitions are positives for the stock.

We believe that Jabil is well positioned to grow over the long term, driven by increasing exposure to non-traditional and emerging sectors such as industrial, renewable energy, clean tech and medical, aided by improving technology spending. Moreover, increasing production capacity in the low-cost regions of China will boost profitability going forward.

However, the company faces strong competition from Flextronics International Ltd (FLEX) and Sanmina-SCI Corp. (SANM), which along with the high debt level and sluggish economic conditions in Europe and the U.S. are the near-term headwinds going forward.

Thus, we remain Neutral over the long term (6-12 months). Currently, Jabil has a Zacks #2 Rank, which implies a Buy rating in the near term.

 
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