Analyst Report from Dec 17, 1999 (Still Good Stuff!)
CREDIT SUISSE FIRST BOSTON CORPORATION
Jabil Circuit (JBL)
Reports Sales and EPS Upside; Raising F00 to $1.60
Summary
JBL reported F1Q00 EPS of $0.34, slightly higher than our expectation
and Street consensus due to higher than expected sales of $689M vs.
our $662M expectation.
JBL's closely monitored inventory balance was less painstaking,
growing $82m seq to $299m. Although components remain tight, JBL's
relatively little/no exposure to cell phone/workstations/servers mkt
shields them from OEMs requesting a Y2K buffer stock.
Seq., comms biz (led by Cisco), grew 27%, PCs (led by Dell laptops)
grew 56% and Peripherals (led by HP) grew 10% (all 10%+ cust.).
Mgnt reiterated their bullish projections for F2Q00E and F00E, once
again led by Cisco, Dell and HP. F00E to $1.60 from $1.55 ($0.03
from core ops. and $0.02 from a lower 31% tax rate).
Applying a 40x to mid-point of our C'00E and C'01E EPS of $1.80 and
$2.40, respectively (or $2.10) translates into a $82 price target.
We reiterate our Buy rating on the shares of Jabil.
Price Target Mkt.Value 52-Week
12/16/991 (12mo.) Div. Yield (MM) Price Range
$71.50 $82 None $6,528.0 $76-29
Annual Prev. Abs. Rel. EV/ EBITDA/
EPS EPS P/E P/E EBITDA Share
8/01E $2.05 2.00 34.9X 137% $3.18
8/00E 1.60 1.55 44.7 162% 2.46
8/99A 1.12 63.8 216% 1.84
Nov. Feb. May Aug. FY End
FY01E NA NA NA NA Aug. 31
FY00E $0.34 $0.37E $0.42E $0.47E
FY99A 0.25 0.28 0.29 0.30
ROIC (12/98)
Total Debt (1Q00) $41.67
Book Value/Share (1Q00) $6.60
WACC (12/98)
Debt/Total Capital (1Q00) 6.5%
Common Shares 91.3
EP Trend2
Est. 5-Yr EPS Growth 30.0%
Est. 5-Yr. Div. Growth
1 On 12/16/99 DJIA closed at 11244.89 and S&P 500 at 1418.78.
2 Economic profit trend.
Note: Calendar EPS estimates for 1998-2000E: $0.90A; $1.18E; $1.80E
Jabil Circuit is a leading CM of datacom, workstation and computer
peripherals products. Current sales rate is in excess of $2B vs.
calendar 1998 sales of $1.4B. Industry position remains No. 6 and
telco asset sales to industry a positive catalyst.
Investment Summary
Inventory Issues
Jabil's total inventory balance (on a proforma basis) grew $82 million
representing 37% growth sequentially. Inventory turns declined to
8.0x from 10x in F4Q99 due to the higher inventory balance.
Management expects inventory turns will return to its 10x level in
FY2Q00E. Although we would describe Jabil's current component
situation as tight (as for all CMs), we would not raise an eyebrow
to its levels based on its future production needs which are strong.
As we have been saying, Jabil is not exposed to the cell phone,
workstations and servers market relative to its other competitors
and therefore is not experiencing the very difficult component
shortages. This explains their $82 million sequential increase,
relative to Solectron's $400 million sequential inventory increase
for its FY1Q00. As well, Jabil has secured orders for this inventory
increase (from customers such as Dell, Cisco and HP).
As well, Jabil reported a strong quarter despite a tight component
market and gave a very bullish outlook for the next several quarters.
For example, for FY2Q00E, comms (led by Cisco) is expected to grow
30%, PCs (led by Dell) up 25% and peripherals (led by HP) up 7%.
Outlook
We are raising our revenue projection by $229 million to $3.47
billion with $197 million from core business and $32 million from
GET Manufacturing (GET is expected to exit FY00E with a $400 million
annual run rate, up from a $270 million annual run rate previously).
Stronger revenues to stem from continued growth with their 3 major
customers, HP, Cisco and Dell.
However, due to lower margins associated with Dell and China, we are
lowering our gross margin estimate to 10.1% for FY00E from 10.6%
previously. Hence operating margin, slightly buffered by a lower
SG&A is expected to decline 30 basis points to 6.3% for FY00E.
Based on our higher sales projection, we are raising our FY00E EPS
to $1.60 from $1.55 with $0.03 from core business and $0.02 from a
lower 31% tax rate (from our previous 32% projection).
Applying a 30% premium to Jabil's long term growth rate of 30%,
implies an appropriate forward P/E valuation of roughly 40x. Based
on the mid-point of our C'00E and C'01E EPS of $1.80 and $2.40,
respectively (or $2.10) translates into a $82 price target. We
reiterate our Buy rating on the shares of Jabil.
Fiscal 1Q00 Results (Note: Comparisons are on a pro forma basis)
JBL reported F1Q00 EPS of $0.34 slightly above our expectation and
Street consensus of $0.33. A 31% tax rate, due to higher income
from overseas versus our 32% tax rate was immaterial to the bottom
line.
EPS grew 19% compared with $0.32 in F4Q99 and 41% compared with
$0.26 in F1Q99.
Total sales of $690 million were roughly $30 million above our
estimate of $662 million. Jabil China (GET Manufacturing)
represented approximately $58 million and the acquisition of EFTC
services business contributed $7-8 million.
Total sales of $690 million grew 15% sequentially and grew 39%
year over year.
Gross margin of 10.6% was 40 basis points below our expectation of
11%. This compares with 11.1% in F4Q99 and 11.0% in F1Q99. The
cause of the GM decline was due to higher materials business
associated with increased business with Dell laptops (a new 10%
customer) and lower margin satellite set-top boxes in China.
Operating margin of 6.5% declined from 7.1% sequentially due to the
lower gross margin.
SG&A of 3.9% was slightly below our 4.1% estimate. This compares
with 4.3% in F4Q99 and 4.2% in F1Q99.
Including a one-time acquisition related charge of $5.1 million,
the tax rate was of 34%. Excluding the charge, the tax rate was
31%. This compares with our expectation of 32%.
Balance sheet metrics: Inventory turns decreased to 8x from 10x,
due to higher inventory build for F2Q00E production. ROA and ROE
decreased to 10.3% and 18.4%, respectively from 13% and 23%. Debt
to capital decreased to 6.5% from 7.1%.
End Market Breakdown
End Market F1Q00 FY00E* Seq % Chg
Comms. 40% 46% 27%
Peripherals 35% 24% 10%
Computers 21% 19% 56%
Subtotal Comp. 56% 43% 22%
Auto 3% 5% 0%
Consumer 3% 6% 100%
Other 0% 0% 0%
Total 100% 100% 15%
Note: Figures may not add due to rounding.
*Company estimates.
Customer Profile
Top 10% customers include Cisco, Hewlett Packard and Dell.
The next 4-7 customers represent 5-8% each of total revenue.
Recent customer additions (in F4Q99) of Lucent, Motorola, EFI and
BCN, an unnamed, large European telecom OEM are on track.
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