JBL: Stock Unduly Pummeled; Sell-Off Is Long-Term
Opportunity
Salomon Smith Barney
Thursday, July 29, 1999
--SUMMARY:--Jabil Circuit--CEMs/EMS
**JBL shares were down almost 10% yesterday on comments by a competing firm to the effect that it would make fiscal 4Q EPS by virtue of lower- than-expected tax rate. *Investors will recall that JBL announced on 3Q conf. call that growth rates for 4Q may be less than previously anticipated due to last-minute design delays on new products from two customers. **We cut our EPS estimate 10% at that time, to $0.30, now the consensus. **We view sell-off as an over-reaction, as long-term fundamentals of the company remain solid and intact. **Shares have sold off sharply--down 26% in past 2 months, and now trade at 24x our calendar 2000 EPS estimate, below a market multiple and well below our projected top and bottom line growth rates of 40% and 33% respectively. **Shares attractive, w/ 42% apprec. potential relative to $56 target. BUY.
--EARNINGS PER SHARE--------------------------------------------------------
FYE 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year
Actual 08/98 EPS $0.25A $0.26A $0.22A $0.17A $0.90A
Previous 08/99 EPS $0.25A $0.28A $0.29E $0.30E $1.12E
Current 08/99 EPS $0.25A $0.28A $0.29E $0.30E $1.12E
Previous 08/00 EPS $N/A $N/A $N/A $N/A $1.49E
Current 08/00 EPS $N/A $N/A $N/A $N/A $1.49E
Previous 08/01 EPS $N/A $N/A $N/A $N/A $N/A
Current 08/01 EPS $N/A $N/A $N/A $N/A $N/A
Footnotes:
--FUNDAMENTALS--------------------------------------------------------------
Current Rank........:1H Prior:No Change Price (7/27/99).....:$43.56
P/E Ratio 08/99.....:38.9x Target Price..:$56.00 Prior:No Change
P/E Ratio 08/00.....:29.2x Proj.5yr EPS Grth...:30.0%
Return on Eqty 98...:N/A% Book Value/Shr(99)..:6.04
LT Debt-to-Capital(a)7.5% Dividend............:$N/A
Revenue (99)........:2005.00mil Yield...............:N/A%
Shares Outstanding..:85.6mil Convertible.........:No
Mkt. Capitalization.:3728.7mil Hedge Clause(s).....:#
Comments............:(a) Data as of the most recently reported quarter.
Comments............:
--OPINION:------------------------------------------------------------------
Jabil shares were down almost 10% yesterday on comments by a competing
firm to the effect that its fiscal 4Q EPS would be aided by a lower than-expected tax rate--from 35% to 33%, and, possibly by
statements from the company at an invistor conference not to expect any "upside surprises" in 4Q.
Investors will recall that JBL announced on its 3Q conf. call that growth rates for 4Q may be less than previously anticipated due to last-minute design delays on new products from two customers. We cut our EPS estimate 10% at that time, to $0.30, now the consensus.
We view this sell-off as an over-reaction and a long-term buying
opportunity, as the long-term fundamentals of the company remain solid
and intact. In our view, there is no "new news" here and the stock has been pummeled. First, we were not expecting any "upside surprises" in a quarter in which the company is experiencing last-minute design delays. We believe these design delays are substantially, if not completely, resolved, and the company is on track for $0.30 in EPS this quarter. As for the change in tax rate, the result in our model is immaterial--less than a penny.
JBL's shares have sold off sharply--down 26% in the past 2 months, and
now trade at 24x our calendar 2000 EPS estimate, below a market multiple and well below our projected top and bottom line growth rates of 40% and 33% respectively. Shares are attractive, with 42% appreciation potential relative to our $56 target. BUY. |
