Jabil Circuit Seeking a Spark

Jabil Circuit (JBL - Analyst Report) has been struggling to meet expectations in a slowing macro-economic environment. Despite weaknesses, Jabil’s financial metrics are improving as the company wraps up restructuring activities, leading to improved profitability.

However, the near-term risks of slowing end-markets have prompted the company to issue disappointing revenue guidance for 2008 and we don’t believe visibility will improve over the near-term. We therefore maintain a Hold rating.

Jabil generates healthy cash flow from operations, reaching nearly $277.0 million in the first half of 2008, and expects to generate in excess of $600 million for the full fiscal 2008. But the company is dependent on a few large customers such as Cisco Systems (CSCO - Analyst Report), Philips (PHG - Analyst Report), Nokia (NOK - Snapshot Report), and Hewlett-Packard (HPQ - Analyst Report), who contribute substantially to its revenue. This concentration leads to earnings and share price volatility. Jabil also has a fairly high level of debt and we believe may have limited financial flexibility going forward.

On a P/E ratio, Jabil Circuit is trading at 15x our 2008 EPS estimate of $0.97, a discount to its industry mean, median, and S&P 500. Given improvements in JBL’s operations, we do believe the stock should trade in-line with the industry median and therefore set a price target of $15.00, or roughly 15.7x our 2008 estimated EPS.

Read the full analyst report on JBL

Read the full analyst report on PHG

Read the full analyst report on HPQ