Jabil: Diversified Manufacturer Growing with Technology

Stephen L Kanaval  |

Jabil Inc. is a manufacturing services company that outsources for many of the largest companies in the world including Apple, Hewlett-Packard, Magic Leap, Go Pro, Tile, Keysight Technologies and Zebra Technologies among many others. As one of the largest U.S.-based manufacturers, the company has nearly $26.3 billion in revenue in the latest 12 months ending Nov. 30, 2019, specializing in automated, continuous flow manufacturing. Jabil consistently has its hand in helping to create the next technological innovation in consumer electronics, although the company is working in almost every major vertical including 5G, IoT, 3D printing, augmented reality and digital healthcare.

Simply put, technological innovation at scale often leads back to Jabil. As connected devices per person worldwide continually increases – we have gone from 3.47 per person in 2015 to 6.58 per person in 2020 (according to Statista) – the company looks like a proxy to bet on upcoming trends in technology, the automotive sector and even healthcare. At the time of writing, the company's stock is up more than 35% over the last 6 months.

Click to enlarge

Source: Company Presentation

In total, Jabil’s commercial portfolio touches 8 segments and Q1 results for 2020 showed 15% year-over-year growth, 3.7% increase in core operating margins and 17% growth year-over-year Core EPS. In the recent conference call, CEO and Director, Mark Mondello, touched on the diversity of the company’s portfolio:

“A bit of our foundational magic which makes the portfolio so powerful comes from our ability to efficiently and quickly share technologies across our various business sectors and do so with little friction. With each passing year, our revenue has become far less dependent on any single product or product family, improving the predictability of our earnings while enhancing our ability to execute.”

Jabil’s EMS and DMS segments

Jabil is broken up into two segments: Electronic Manufacturing Services (EMS) and Diversified Manufacturing Services (DMS). The EMS segment focuses on computer components, printing and telecom, while DMS is engineering solutions for the technology and material sciences sector. In fiscal Q1 2020, revenue for DMS was $3.1 billion, an increase of 3% year-over-year with core margins at 5.6%. EMS’s revenue increased 26% year-over-year to $4.4 billion with core margins of 2.4%.

DMS is the higher-margin segment and often partners with companies to work hand-in-hand like it has with HP’s Multi Jet Fusion Additive Manufacturing System. As an example of another high-profile client using Jabil’s equipment, the latter piece of technology is already making 50,000 mouth molds a day for SmileDirectClub, according to ZDnet.

While DMS represents some of the sexier projects for which Jabil is known, the global EMS market is growing rapidly and is expected to surpass $650 billion by 2024 with a CAGR of 7.5%, according to Global Banking and Finance. The catalyst for this industry growth is consumer demand for new products, a reduced time to market and increased competition. Furthermore, Jabil offers network infrastructure for 5G and, as I have written about recently, 5G network infrastructure will reach $4.2 billion, an 89% increase from 2019, according to Gartner, Inc.

With its hands in many of the growing technology trends, Jabil offered guidance of a 4% increase for Q2 on a year-over-year basis for their DMS segment and a 5% increase year-over-year for their EMS segment due to higher revenues in cloud and auto sub-segments.

“We expect total company revenue in the second quarter of fiscal 2020 to be in the range of $6 billion to $6.7 billion for an increase of 5% at the midpoint of the range,” Jabil CFO, Mark Dastoor, said in the company earnings call. “Core operating income is estimated to be in the range of $155 million to $255 million with core operating margin in the range of 2.6% to 3.8%.”

Growth Opportunities and Risks

Jabil is extremely diversified and skilled at acquisitions. Last year, the company acquired medical device manufacturing facilities (14 sites were mentioned in the deal) covering endoscopy, surgical, spine, trauma and instrumentation from Johnson & Johnson. The company believes these acquisitions could grow annual revenue by $1 billion annually. The transfer of J&J’s medical device manufacturing capacity offers high profit margin sales that are predictable.

One risk factor, however, is how large of a footprint the company has in China. The company does certainly benefit from manufacturing in China, and it has around 44 million square-feet in facility space, but Jabil is far from dependent on Chinese manufacturing as it boasts manufacturing space in 29 countries. This gives Jabil the ability to move operations entirely or expand operations at an existing facility. Further, Jabil is commencing a 2020 restructuring plan in China including headcount reductions and capacity realignment.

_____

Equities Contributor: Stephen L. Kanaval

Source: Equities News

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer. The author of this article, or a firm that employs the author, is a holder of the following securities mentioned in this article : None

Companies

Symbol Name Price Change % Volume
GPRO GoPro Inc. 4.29 -0.02 -0.46 6,030,411 Trade
JBL Jabil Inc. 43.22 0.10 0.23 675,105 Trade
KEYS Keysight Technologies Inc. 105.37 2.00 1.93 1,852,978 Trade
SDC SmileDirectClub, Inc. - Ordinary Shares - Class A 12.90 -0.37 -2.75 14,681,293 Trade

Comments

Watchlist

Symbol Last Price Change % Change
AAPL

     
AMZN

     
HD

     
JPM

     
IBM

     
BA

     
WMT

     
DIS

     
GOOG

     
XOM

     
BRK.A

     
FB

     
JNJ

     
WFC

     
T

     
NFLX

     
TSLA

     
V

     
UNH

     
PG

     

World Economic Forum at Davos 2019 - Ben Yablon Executive VP Salt Lending

Matt Bird sits down with Ben Yablon - Executive VP of Salt Lending - at the World Economic Forum in Davos January 2019