Today we have a moderately speculative idea.: take stock of sophisticated electronics manufacturer Jabil (NYSE: JBL) against the backdrop of the success of its main customers.
Growth potential and validity: 20% behind 19 months excluding dividends; 8% per year for 10 years excluding dividends.
Why stocks can go up: the company is doing well.
How do we act: take now 53,94 $.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
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And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark: as with the investment idea as a whole, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
What the company makes money on
The company is engaged in the design and assembly of complex electronics. According to the annual report, its revenue is divided into two segments.
Services in the field of electronics manufacturing — 61% of total revenue. Pre-tax segment margin — 2,69% from its proceeds. These are IT services., logistics management and design. The company's revenue in this segment is broken down by customer type as follows::
- digital printing and retail — 16,31%;
- industry and equipment for the production of semiconductors — 24,82%;
- 5G, wireless connection and cloud computing - 39%;
- network operation and data storage — 19,87%.
Services in the field of diversified production — 39% of total revenue. Pre-tax segment margin — 3,91% from its proceeds. It is a design service with a focus on research, technology and healthcare. The company's revenue in this segment is broken down by customer type as follows::
- healthcare and packaging 31,81%;
- automotive and transport — 12,87%;
- connected devices - 30,3%;
- mobility - 25,02%.
The final consumers of Jabil are large Western corporations: Amazon, Apple, Cisco Systems, Hewlett-Packard, Ingenico Group, Johnson and Johnson, Ericsson, NetApp, SolarEdge Technologies и Tesla.
Revenue by country
| USA | 17,4% |
| Singapore | 23,88% |
| Mexico | 17,18% |
| PRC | 16,18% |
| Malaysia | 6,97% |
| Vietnam | 3,37% |
| Other countries | 15,02% |
USA
17,4%
Singapore
23,88%
Mexico
17,18%
PRC
16,18%
Malaysia
6,97%
Vietnam
3,37%
Other countries
15,02%
Arguments in favor of the company
The indicators are here, and there. In the review of Applied Materials and Entegris, I already spoke about the growth in production and demand in the field of electronics, which in itself should be a sufficient argument in favor of Jabil. But let's see, How are the company's largest customers doing?.
According to the annual report, Apple gives 20% proceeds, and Amazon — 11%. In the last quarter, Apple's sales of devices increased compared to the same period last year by 61,64%. I did not find statistics on sales of Amazon devices in the reporting, but, Considering, that the company is actively promoting its new devices, Jabil may well hope for an increase in orders.
He is Qorvo, major supplier Apple, revenue increased by more than a third in the last quarter, and increased operating profit. So I would expect good results from Jabil too.
Purchase opportunity. In absolute and relative terms, the company is inexpensive: capitalization of 8 billion dollars and P / E in the area 22,72 - very good by today's standards. Given the importance of the company in the structure of supply chains, I wouldn't be surprised, learning about it, that a large private fund is planning to buy the company. Understandably, that such a thing cannot be predicted for sure, but the option is not the most incredible.
What can get in the way
Concentration. Changing relationships with one of the major customers may adversely affect reporting.
Wrecked. The company pays 32 cent dividend per share per year, what about the current share price 53,94 $ gives 0,59% per annum. It costs Jabil about $52 million a year to do this, which is about 14% from the company's profit for the last 12 Months. But there's always a chance, that payments will be cut for more noble purposes - for example, to expand production capacity. Moreover, the company has a tiny final margin - only 1,3% from proceeds. Therefore, a strong increase in costs is possible with an increase in revenue., because of what the total profit or will fall, or at best will stagnate.
“Hmmm, this, certainly, not Samara". Yet again, the company has very low margins, therefore, in terms of growth in business profitability, it is definitely better not to hope for stunning growth.
What's the bottom line?
We take shares now by 53,94 $ for pike, then there are two options:
- we wait, when will the shares be worth 65 $. Think, that they will reach the specified threshold in the following 19 Months;
- a fairly rational option would also be to hold these shares for the following 10 years. The company's services and products are in high demand, so here you can play for a long time.
