From Briefing
Jabil Circuit (JBL) 36 3/8 +5 1/8: A strong rebound today for JBL shares after the stock took a 22% dive yesterday. Yesterday's selling was attributed to two primary drivers. First was the blowup at Gateway. Gateway represents about 5% of total JBL revenues, but is slated to account for only about half of that percentage next year. Certainly a slowdown in PC demand is a concern for EMS (Electronics Manufacturing Services) companies like Jabil in the near-term, but from a big picture perspective, could be a long term positive. As PC makers struggle with demand forecasting and inventory management, it reinforces our view that a shift to more outsourced manufacturing is still the long term trend. Another reason the shares were under pressure yesterday was a trading floor rumor that Cisco was dumping $300 mln in excess raw materials inventory back on the contract manufacturers as component shortages ease. That rumor makes little sense and appears completely unsubstantiated. Contract manufacturers assume minimal inventory risk, they buy the raw materials their customers' products require and charge the customer the cost of materials plus the price of the assembly services, it's all governed by a contract, there is little to no inventory-related risk. As for the Gateway slowdown, there is no doubt that the PC sector is slowing, but keep in mind that every single EMS company has made significant progress in diversifying away from PC reliance. In fact, much of Jabil's strength in the equity market earlier this year was attributed to increased traction in non-PC-related contract wins from such customers as Nokia, Sycamore, Marconi and Lucent. We were cautious on JBL shares in early September when they were trading in the mid to high $60s, but even recognizing the slowdown in many of the end markets it serves, we like the long term prospects at current levels. Current forward (Aug 2002) P/E is 23.6x, long-term growth rate is 30%.- Matt Gould, Briefing.com |
