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Strategies & Market Trends : Electronic Contract Manufacture (ECM) Sector -- Ignore unavailable to you. Want to Upgrade?

To: Ron Kory who wrote (1644)	8/1/1998 2:14:00 PM
From: kolo55	Read Replies (1) \| Respond to of 2542

By next year JBL and FLEXF will break out of small cap territory. This could really power the stocks. Look at JBL and compare with SLR (both companies have fiscal years ending in August). For FY96, Solectron did $2.8B and in FY97 $3.7B in revenues. By next fall, Jabil should be doing about $3B on an annualized run rate. Looks to me as Jabil is about three years behind Solectron, and closing the gap. This is impressive, since Solectron is an extremely well run company, broadening the roles and boundaries of the EMS industry, and growing revenues impressively. The stock market doesn't have the Jabil growth priced in yet, which is why we're talking about it. The current market cap of Jabil is $1.30B, and usually these stocks trade at a PSR of about 0.6 to 1.0 (and occasionally higher). By the end of calendar 99, this implies a market cap for Jabil of $1.8B to $3.0B (and considering the volatility of this stock, we may see the entire range of these market caps every three months :) When the market cap breaks $2.0B, the idea that this stock should trade at a discount because its small capitalization loses a great deal of credibility. The same thing is somewhat true for FLEXF. I've said before, that one of the reasons these two stocks are my favorites in the ECM sector is that they are in the "sweet spot". They are big enough to capture the $300-800M outsourcing deals of the type that have been announced, and they are small enough, that these deals represent extraordinary growth for the companies. Also they are small enough, and illiquid enough, that the really big funds tend to ignore them, which helps lead to very attractive valuations. But sometime in the next two years, these stocks will lose the small cap stigma. Paul