Hot stock or dud? Mixed signal on Jabil Circuit
Has Barron's lost its bearings, or has the investor weekly got a good idea here? Its latest feature story says the S&P is on sale with bargains to be had among the lowest-priced issues. In fact, it screened the Standard & Poor's 500 for stocks trading below $10 a share -- a group that currently numbers roughly 80 issues, or 16 percent of the index. Most are down more than 50 percent, Barron's says, in the worst bear market in years.
We care, in particular, because St. Petersburg's Jabil Circuit Inc. -- which reports quarterly earnings this week --is one of those priced under $10.
Barron's explains how it separated the potentially troubled from the merely cheap, then screened for companies likely to increase earnings per share -- even if only by a penny -- in 2009. It also weeded out those with heavy debt. What was left, Barron's calls the the "survivors." The article says Jabil, which last traded at $6.60 a share, "could see profits jump 4 percent for the fiscal year ending in August, to $1.16 a share. Analysts are penciling in $1.36 for fiscal 2010."
Here's something to make things as clear as mud. In Friday, Citigroup analyst Jim Suva made across-the-board cuts in earnings estimates for a slew of companies in the electronics supply chain, including Jabil Circuit. He cited “the weakening macro environment, falling utilization rates and compressing margins.”
Suva singles out Jabil, downgrading the stock to Sell from Hold, and cutting his price target to $5.50 from $12. He writes in a research note that he is “increasingly concerned” that customers that typically outsource their electronics manufacturing to businesses like Jabil are set to pull manufacturing back in house in order to offset falling utilization rates at their own facilities. Suva says that Jabil is “particularly at risk” given the manufacturing capabilities of several of its largest customers:
“Our take is that Jabil is likely to see material revenue headwind in coming quarters as several of these customers decrease their exposure to outsourced manufacturing. Until this process has run its course, we do not recommend that investors own Jabil shares.”
So which is it? Jabil the super S&P bargain with a stock price under $10? Or Jabil the pariah of the electronics recession? We'll know more on Friday the 19th when Jabil reports its quarterly earnings.
-- Robert Trigaux, Times Business Columnist