Companies in the tech space have been the largest beneficiaries of the pandemic and their stocks have been on a solid run over the past year. The demand for tech products and services is growing with continued changes in consumer and business behavior.
Jabil Inc. (JBL), which was founded in 1966 and is based in St. Petersburg, Florida, has benefited immensely from last year’s tech-rally. The stock has returned nearly 25% over the past three months and we think still has upside.
Let me explain why JBL could prove to be a solid tech investment:
Latest Movement to Boost Sustainable Packaging
Last month, JBL announced the acquisition of Ecologic Brands, Inc., a leading provider of sustainable packaging specializing in paper bottle and paper-based packaging solutions. Ecologic’s Manteca, a California-based operation, will join Jabil’s Packaging Solutions division to enhance JBL’s sustainable packaging platform and offerings to consumer-packaged goods (CPG) customers.
Recent Financial Results
For its fiscal first quarter ended November 30, 020, JBL’s revenues increased 4.4% year-over-year to $7.83 billion, driven by strong orders from the healthcare, automotive, cloud and 5G sectors. Its Diversified Manufacturing Services (DMS) segment contributed 54% of total revenues, which improved 13% year-over-year to $4.23 billion. The revenue increase can be attributed to growth in JNL’s $5-billion healthcare and packaging business, which serves many of the most critical healthcare, medical device and consumer packaged goods companies in the world. Its adjusted EPS came in at $1.60, surging 52.4% compared to the year-ago value of $1.05.
Solid Client Roster
JBL has consistently posted strong results over the past few years. The company serves a variety of industries, including appliances, automotive electronics manufacturing, computing and storage, defense and aerospace, energy, healthcare, and others, and includes among its clients the likes of Apple (AAPL), Cisco Systems (CSCO) and Hewlett-Packard (HPQ). AAPL is JBL’s largest customer, which has seen massive gains on the back of strong demand for its new 5G-enabled iPhone 12.
Industry Strength
Even with containment of COVID-19 and a global economic recovery this year, the coming technology wave of artificial intelligence (AI), 5G networks, cloud computing and virtual reality could rule the next decade, representing sky-high growth opportunities for the tech space, which should attract and comfort investors. We expect JBL to benefit from this. .
Expected Growth in Financials and Analyst Sentiment
Analysts expect JBL’s current year revenue and EPS to increase 1.2% and 59.7%, respectively. Also, the company’s EPS is expected to grow at a rate of 13.5% per annum over the next five years.
Of the 11 Wall Street analysts tracking the stock, eight have given it either a Strong Buy or a Buy rating. JBL is currently trading at $41.37 and analysts expect the stock to hit $44.20 in the near term, which indicates a potential upside of 6.8%.
Our POWR Ratings Show Odds are in the Stock’s Favor
JBL has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors.
Our proprietary rating system evaluates each stock based on eight different categories. Among these categories, JBL has a Growth Grade of B. Over the past three years, the company has grown its revenue and EPS at a CAGR of 12.2% and 35.3%, respectively.
Moreover, JBL has a Value Grade of B, which is supported by the stock’s lower-than-industry forward P/E ratio (8.92 vs 26.37).
Beyond what we have stated above, our POWR Ratings we also award JBL grades for Momentum, Stability, Sentiment, Quality, and Industry. Get all the JBL ratings here.
There are several other stocks in the Technology - Services industry with an overall POWR Rating of A or B. Click here to see them.
Bottom Line
JBL has positioned itself as a critical and trusted supplier for some of the world’s leading brands and is thus benefiting from powerful end-market trends. The company is working on building a more optimized and well-balanced commercial portfolio of businesses. Going forward, JBL’s management expects sustained demand for manufacturing services in additional key markets, such as the 5G and wireless networking. So, we believe one should consider adding JBL to their portfolio to benefit from the booming global electronics markets.
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JBL shares were trading at $42.42 per share on Monday afternoon, up $1.05 (+2.54%). Year-to-date, JBL has declined -0.26%, versus a 0.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.
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