Jabil Circuits (JBL)

[eastunder]

Jabil Circuit Struggles Continue

Friday , March 28, 2008 07:09ET

Steve Biggs, CFA

Mar 28, 2008 (Zacks Investment Research via COMTEX) -- Jabil Circuit, Inc. (JBL) has been struggling to meet expectations in a slowing macro economic environment. Despite weakness, Jabils 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 forced the company to issue a disappointing revenue guidance for 2008, and we dont believe visibility will improve over the near-term. Although short-term challenges are likely to persist, the long-term looks more positive, with new program wins in computing and storage, peripherals, and networking.

We, therefore, maintain a Hold rating on the shares of JBL and lower our six-month price target to $10. Shares of Jabil have fallen significantly due to concerns about the health of its end-market. The stock is currently trading at its 52-week low, which reflects a P/E of 9.6x our 2008 EPS estimate of $0.97, a discount to the industry mean and Samp;P 500. Management also updated guidance for the full year 2008. It currently expects full-year revenue in the range of $12.6 billion to $12.8 billion versus previous guidance of $13 billion to $13.4 billion. This decline in forecast is due to the softening macroeconomic environment.

Management expects slowdown in end-markets, which will reduce its growth rate and impede margin expansion for the next quarter or two. As such, core EPS is expected in the range of $1 to $1.16 versus previous guidance of $1.20 to $1.50 range. At its midpoint, this guidance reflects a year-over-year growth in revenues of 4%; core operating income growth of $44 million, or 13%; EBITDA of approximately $605 million, or growth of 10% on a year-over-year basis.

Although Jabil has been showing signs of improvement from restructuring activities, with financial metrics improving and helping the company to get closer to its long-term targeted return levels, the slowing end-markets have prompted the company to issue a disappointing revenue guidance for 2008. We believe that EMS stocks should trade in the low double-digit level on a P/E basis.

Given an increasing downside risk to growth and a weakening economic outlook, we lower our price target to $10, which reflects a P/E multiple of 10.3x our fiscal 2008 earnings estimate. Read the full analyst report on JBL. nbsp;