Merrill Lynch....Sept 2
Price: $45 1/8
12 Month Price Objective: $55
Investment Highlights:
· We believe Jabil's current share price offers an
excellent opportunity to invest in one of the electronic
manufacturing services (EMS)industry leaders.
· At 28X P/E our calendar 2000E EPS Jabil's shares are
trading at a discount to our projected 30% five-year
growth rate.
Fundamental Highlights:
· Jabil completed its $30 million purchase of EFTC's
repair and warranty services.
· The newly formed Jabil Global Services business
will offer repair and warranty service from its three
hub operations.
· All key EFTC Services employees have joined Jabil
and its president will serve as president of Jabil's
Global Services business unit.
· We view this purchase favorably since repair/warranty
service is becoming another important service requirement
for EMS providers.
· This acquisition should add about $40 million to our
F2000 sales estimate and be neutral to earnings.
Closes Repair/Warranty-Services Purchase BUY*
Long Term
BUY Reason for Report: Acquisition Completed
Merrill Lynch & Co.
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
RC#10124528
Closes Repair/Warranty Services Purchase
Jabil completed its $30 million cash purchase of the repair
and warranty service business of Colorado-based EMS
provider, EFTC Corporation. All key EFTC Services
employees have joined Jabil and its president, Allen
Braswell, will serve as president of Jabil's Global
Services. EFTC Services employed about 500 people.
EFTC acquired the repair and warranty service business
when it bought Circuit Test, Inc. and affiliates in
October 1997. EFTC did not consider this business a
core asset because its major customers did not utilize
the services in any meaningful way.
n Hub-Repair
The newly formed Jabil Global Services business will
offer repair and warranty service from its three U.S. hub
operations located in Memphis, Tennessee; Louisville,
Kentucky; and Tampa, Florida.
The Memphis, TN location is a major hub-repair center
with about 150 employees. The term hub-repair includes
a reference to a transportation hub (Federal Express in
this case) where EFTC has co-located repair facilities.
Through this program, equipment can be received and
repaired with improved logistics costs and turn-around
times for the customer through earlier receipt (in by 7:00
am) and later shipment (out by 12:00 midnight) of product.
Equipment repaired in Memphis includes communications
equipment, personal computers, and notebook computers.
The Louisville, Kentucky location is a major repair hub
with about 250 employees. Products repaired in this
facility include notebook computers, personal computers,
and printers. This is another hub-repair center (UPS is
co-located).
The Tampa, Florida facility is a bulk repair facility that
provides service support for products such as notebook
computers, monitors, PCB assemblies, and printers.
Approximately 100 employees are located in the Tampa
facility.
n Strategically Important
Repair and warranty services are becoming important
capabilities for an EMS provider to posses since both
enable the EMS company to package a product-lifecycle
solution (repair service, spare parts, product re-calls)
for the customer. Jabil now has the ability to offer the
repair and warranty-services that its main competitors
are rushing to offer.
The types of customers using these repair and warranty
services closely resemble Jabil's current customers. These
companies include OEMs that produce communications
equipment, notebook computers, personal computers and
printers. This extra breadth of service could help Jabil
gain larger contracts by providing an OEM with the
one-stop shopping it may be looking for.
We view this purchase favorably since repair/warranty
service is becoming an important requirement in the EMS
industry. This acquisition should add about $40 million
to our F2000 sales estimate and be neutral to earnings.
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