The Investment Case For Jabil Circuit, Inc. (NYSE:JBL) - Hot Stock

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Jabil Circuit Inc is one of the leading global suppliers of electronic manufacturing services (EMS) and solutions for several industries including networking, computer peripherals, and telecom. The company specializes in printed circuit boards, electronic components, and systems. EMS companies like JBL are able to reduce unit costs for electronics manufacturers by combining similar manufacturing operations into a smaller number of plants, creating operational synergies with lower unit costs.

We like Jabil Circuit Inc for the following reasons:

EMS industry outlook positive: Jabil saw healthy demand in its most recent quarter, with revenues for Computing & Storage, II&M, and Networking up 15%, 14%, and 18% q/q, respectively. Jabil’s management expects EMS revenue to increase 8% q/q in Q310 (better than historical seasonal trends). EMS is well-positioned to grow over the next few years, driven by non-traditional sectors, as outsourcing penetration in these segments is very low. IDC predicts an EMS industry CAGR of 9% from 2009-2013.

Green Point prospects: Jabil is planning to invest $70 million in Cap Ex during Q310 to support its several recent wins within Jabil Green Point, which specializes in the design and production of plastic and metal castings for the promising mobile products market, as well as for medical and industrial electronics.

Operating margin leverage: Margin expansion accelerated this past quarter, reflecting the leverage inherent in Jabil’s operating model. The EMS division delivered a record 4.24% operating margin, up 337 bps from a year ago. 2009 restructuring actions should result in $55.0 million in annualized cost savings. Also, Jabil’s investment in Green Point is significant as growth in the mechanicals business should drive margins up. Jabil expects to reach an operating margin of more than 4.0% in the longer-term.

Inventory levels ok: Component shortages continue to be a headwind, and could persist over the next few quarters. Even so, inventory turns were in line with normal seasonality and below historical averages.

We believe JBL’s shares are attractively priced.