Jabil Inc (NYSE: JBL) shares are down about 5.0% following the Q2 earnings release, opening up a buying opportunity for investors. The news was good but not good enough to sustain the rally without a bit of corrective action first. The takeaway is this blue-chip quality tech company, with its finger on the pulse of global manufacturing, is producing earnings growth in a no-growth environment and forecasting more in Q3.
Trading under 10X its earnings Jabil is a deep value relative to the S&P 500, so it could see a multiple expansion as investors rotate into the quality stocks and out of risk.
The insiders have been selling the stock in Q1 2022, which helped to put a top in the market. The selling is broad among execs but small and timed with all-time high share prices, so not a red flag. The insiders hold 2.75% of the stock compared to roughly 88.5% among institutions, and the institutions are buying. The institutional activity was mixed in 2022 but netted about $0.5 billion in shares for the group, and buying remained strong in Q1 2023.
Jabil Inc. Results Are No Catalyst For Rally
Jabil Inc.’s results were good, but they’re no catalyst for a rally in good times, and these aren’t good times for the market. The $8.13 billion in net revenue is up 7.7% compared to last year and beat by $0.03 billion, but the guidance for Q3 is tepid and on the back of an expected downshift in device production in 2023. Gartner reported an expected -4.4% decline in device shipments this year in early February, and the recession outlook has only worsened. On a segment basis, Diversified Manufacturing Services grew by 8%, while Electronics Manufacturing Services grew by 7%.
The margin news is good too. The gross and operating margins increased on leverage and controlled spending but were offset by increased interest and income tax expenses. This left the net income down on a YOY basis, but adjusted earnings are up. Adjusted earnings are up nearly 12% compared to the 7.7% gain on the top line. The bottom line strength was aided by share repurchases, which had the count down almost 7%. Share repurchases are expected to continue, although they have slacked off considerably in recent quarters.
Given market conditions, guidance is favorable but not a catalyst for higher share prices. The company is expecting revenue in the range of $7.9 to $8.5 billion, which suggests there could be a significant YOY decline up to a small gain. The adjusted EPS outlook is slightly better, with the $1.70 to $2.10 range bracketing the $1.89 consensus figure nicely. Jabil tends to beat its consensus estimates, so the bias is for results to fall in the high end of the range, although there is a risk. The banking crisis may not lead to additional closures, but it and FOMC policy tightening will reduce business investment which could impact growth at Jabil.
The Analysts Support Jabil Inc.
Jabil only has 5 analysts covering its stock, but that’s a decent amount for a hum-drum blue chip stock like this. Their consensus is a Buy with a price target of 15% above the post-release price action and trending higher. The latest shout-out came the day before the earnings release from Raymond James, which has the stock pegged at Strong Buy with a new target of $100 or $12 above the average target.
Shares of Jabil fell more than 5% following the earnings report, but there are already signs of buying. The weekly candle isn’t closed yet but shows a lower wick indicating support above the 150-day moving average. If the market can sustain support at this level, it may regroup quickly and retest the recent highs. If not, shares of Jabil may pull back to test support at the long-term moving average and the previous all-time high, where buying should be robust.
