excerpts from Pru visit to SCI AND JBL
Analysts: Ellen Chae (415) 274-7955
* Yesterday, we began Day 1 of Prudential?s European Manufacturing Tour in Scotland. We met with local management and toured the manufacturing facilities of CPQ, SCI, SUN, and JBL.
* SCI noted that Europe was tracking to expectations in the quarter with modestly weaker PC business being offset by stronger than expected set top box business. We believe the 7 facilities in the European division account for approx. 13% of the company's revenues.
* JBL is currently in its quiet period, but we believe business continues to be strong. Management indicated that the Hungary facility would be upsized to 40% to 280K sq. ft. to reflect the strong interest the company has received
for its Hungary operations. We expect the facility to come on line in the early Fall 2000 and provide upside to our earnings expectations of $1.04 per share for fiscal 2001.
* We continue to recommend purchase of SCI ($47 1/2, STRONG BUY/SBI) and JBL Circuit ($42, ACCUMULATE). We believe SCI remains the most attractively valued top tier EMS company at 28X our fiscal 01 (ended June) earnings estimate of $1.72 per share or 1.1 PEG. We further believe JBL continues to
deliver strong organic growth and is well positioned to benefit from the expected strong wave of telecom outsourcing.
Highlights of SCI Visit and Investment Recommendation
SCI noted that Europe was tracking to expectations in the quarter with modestly weaker PC business being offset by stronger than expected set top box business. We believe the 7 facilities in the European division account for approx. 13% of the company's revenues.
We met with David Rees and Jim Ferguson, the 2 Senior VPs of SCI European division and toured the 170K sq. ft. facility. Management indicated that the low capacity utilization, approx. 30%, was due to a number of product transitions. The facility was reported to be at a run rate of $60 million per quarter and solidly profitable, as the costs of operations remains low. HP (DAT products) was noted to be the largest customer of the facility.
Relative to component supply, management indicated that although tantalum caps and flash memory continued to be tight, supply had improved over the past 6 months. Management further expects the constraints to ease as they get through calendar 2000.
We believe SCI remains the most attractively valued top tier EMS company at 28X our fiscal 01 (ended June) earnings estimate of $1.72 per share or 1.1 PEG. Having re-accelerated growth and strengthened its management team, SCI is focused on transforming itself into a more aggressive, e-enabled EMS supplier. As the company continues to deliver on expectations and grow its operating margins, we expect an expansion in the P/E multiple and for the
shares to trade in line with competitors on a PEG basis.
Highlights of JBL Visit and Investment Recommendation
JBL is currently in its quiet period, but we believe business continues to be strong in Europe. We visited the company?s approx. 200K sq. ft. Livingstone, Scotland manufacturing facility. JBL has a second Livingstone facility approx. 80K sq ft dedicated to Cisco business. 3Com, Cisco, Dell, Marconi, Nokia are among JBL's Scotland customers. Business for Dell (notebook PC related), Marconi and Cisco were noted to be particularly strong. Management indicated that the Hungary facility would be upsized to 40% to 280K sq. ft. to reflect the strong interest the company has received for its Hungary operations. We expect the facility to come on line in the early Fall 2000 and provide upside to our earnings expectation of $1.04 per share for
fiscal 2001 (ended August).
In contrast to comments by SCI, JBL management noted a broadening of constraints from commodity capacitors into resisters. JBL does not expect to see a meaningful improvement over the next 6 months.
We believe JBL continues to deliver strong organic growth and is well positioned to benefit from the expected strong wave of telecom outsourcing.
We would look to get more positive on the shares of JBL on better visibility into the upside potential from the company's international expansion efforts.
The shares are now trading at 40X our fiscal 01 (ended August) EPS estimate of $1.04.
¸Prudenti al Securi ti es Incorporated, 20 0 0, all ri ghts reserved. One Seaport Plaza, New York, NY 10292 |
