Jabil Circuit Upgraded

We are upgrading Jabil Circuit Inc. (JBL) to Outperform from our previous Neutral rating following the company’s impressive first quarter 2011 results. Jabil’s results also improved in each of the four quartersof 2010 and beat the Zacks Consensus Estimate.

First Quarter Earnings Highlight

Jabil’s first quarter 2011 results were above the Zacks Consensus Estimate, driven by a strong top-line growth and better-than-expected operating margin. Earnings per share (EPS), including stock-based compensation expense but excluding one-time expenses, increased significantly in the quarter to 52 cents, beating the Zacks Consensus Estimate of 47 cents. Earnings increased 108.0% from 25 cents a share in the year-ago quarter.

Jabil posted revenue of $4.08 billion in the first quarter, up 32.2% from $3.09 billion in the year-ago quarter and above management’s guidance of $3.9 billion to $4.0 billion. On a sequential basis, revenues increased 6%. Revenues surpassed the Zacks Consensus Estimate of $3.96 billion. The year-over-year increase was driven by a surge in demand.

Good Guidance

Management pointed out that continued focus on diversification and a differentiated business model will boost growth throughout fiscal 2011.

Jabil expects second quarter 2011 revenue between $3.85 billion and $3.95 billion, above Zacks Consensus Estimate of $3.69 billion. Core EPS (non GAAP) is expected to range between 49 cents and 53 cents. This excludes 3 cents per share in amortization expenses and 9 cents per share in stock-based compensation expenses. Core operating income for the second quarter of fiscal 2011 is expected to range from $160.0 million to $170.0 million or 4.1% to 4.3% of net revenue.

Estimates Up

Clearly, a positive sentiment is palpable among the analysts, who remain optimistic on Jabil’s performance. Given impressive results and a robust guidance, the Zacks Consensus Estimates have been climbing with all the analysts covering the stock increasing their estimates in the last 30 days.

In the last 30 days, all the 8 analysts providing estimates raised the same for the second quarter and full-year 2011. This ascertains the analysts’ bullish outlook on the stock.

In the last 30 days, the Zacks Consensus Estimate for second quarter 2011 EPS increased by 7 cents (or 18.9%) to 44 cents. For fiscal 2011, estimates rose by 25 cents (or 14.6%) to $1.96. Revenue estimates are up by 4.7% for fiscal 2011.

We expect Jabil to achieve strong top-line growth with operating margin leverage and robust earnings momentum, riding on new business wins, growth in IT enterprise spending, a recovery in end-market demand and transition to higher margin businesses. The company provided an upbeat second quarter guidance as it is experiencing stable trends and growth across all business areas.

Jabil a Zacks Rank #1 Stock

Jabil is expected to benefit from strong growth in the Mobility, Aerospace and Defense, Healthcare, Instrumentation and Industrial, Clean Tech, Networking and Storage segments.

Jabil’s first quarter revenues and earnings surpassed the Zacks Consensus Estimates. The company recorded strong sequential and year-over-year growth based on a recovery in the overall EMS industry, recovery in end markets as well as a strategic shift to high margin business.

However, intense competition and a slowdown at Jabil’s customer, Cisco Systems (CSCO) (15% revenue share in 2010), are areas of concern.

With an increase in the number of upward estimate revisions, following the earnings release, we believe that the share price could go up. Jabil is currently rated as a Zacks #1 Rank (short-term Strong Buy).

JABIL CIRCUIT (JBL): Free Stock Analysis Report

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