Response on JBL/SLR:
Sorry for delayed response, have been traveling:
JBL EPS has not increased commensurately w/top line growth as have been investing heavily in SG&A (they were underinvested and were earning abnormal returns), now are overinvested, and SG&A at about 4% should start declining towards 3% over the next year (which is very meaningful to EPS due to structure of P&L).
JBL and SLR both depend on the economy to a degree (so does almost every other stock), but depend on the econmy much less than the typical OEM (which normally gets a higher multiple). They depend less on the economy because a lot of their growth comes from new program wins, i.e. outsourcing, Recession/slowdown actually drives more outsourcing-> after the September turmoil we have seen enormous outsourcing announcements from Phillips, Compaq, and Nortel, (amongst others). The difference now between JBL and SLR is that SLR is experiencing the law of large numbers. They are so big, it is hard to win enough large programs that give them enough growth. JBL has giant new program wins from Nortel, Dell, Lucent (unannounced) and Alcatel (unannounced) among continued new awards from existing customers that amount to a huge backlog of business beyond what is in their conservative guidance. Solectron needs to do more acquisitions or win meaningful new pieces of big business to hit their numbers, and is also losing some meaningful bits of business due to customer service issues. So Solectron is relying a lot more on exogeneous forces than Jabil is. We saw that last Q, where SLR basically missed thier number (and stock still up, unbelieveable)-> top-line was $50mm-$100mm light and tax rate dropped 1.5% sequentially to hit number. Also in my opinion I think they may have monkeyed w/P&L to hit number as GM% was up 30bp sequentially. GM% should not move that much sequentially in such a big business. They talked about efficiency improvements (again a challenge to get so much all of the sudden in such a big business), which I think is cover up for aggressiveness on the quarterly P&L.
So net/net my answer is go long JBL and short SLR. JBL EPS in the bag, may actually be low, SLR EPS a stretch and may miss (saw chinks in the armor last Q). SLR also has P/E about 8 points more than JBL and has a lower forecasted growth rate (it actually earned less than JBL last Q). SLR also has lower ROE. SLR is also not on good terms with Lucent (think their primary contract manufacturers will be JBL, FLEX, CLS), so SLR will get relatively little business from the biggest new customer of the contract mfg. industry.
BTW, my point on contract mfg. should have higher mutiple than OEM is as follows:
Contract Mfg. is not beholden to a single technolgy, industry or product cycle, but instead is a diversified play on technology with accelerated growth due to an aggessive move by OEMS to outsourcing. If you look at the earnings stream of JBL, SLR or FLEX against thier OEM partners like CPQ, HWP, IBM, INTC, COMS, ASND, BAY, etc. (CSCO & DELL exceptions) you will find more consistent and rapid growth at the contract mfgs. So while everyone talks about contract mfg. low margins and proprietary technology at the OEM, fact of the matter is propietary technology at OEM always seems to go away to competition and the low-margins at contract mfgs. are consistent, so little margin risk.
Also, who/what are you. I can't believe I just spent all this time responding.
All above is my opinion.
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