JBL Stock Study (6-19-24)

Posted by Mark on August 2, 2024 at 06:05 | Last modified: June 19, 2024 07:51

I recently did a stock study on Jabil Inc. (JBL) with a closing price of $126.23.

M* writes:

     > Jabil Inc is a United States-based company engaged in providing
     > manufacturing services and solutions. It provides comprehensive electronics
     > design, production and product management services to companies in various
     > industries and end markets. It operates in two segments. The Electronics
     > Manufacturing Services (EMS) segment, which is the key revenue driver, is
     > focused on leveraging IT, supply chain design and engineering, technologies
     > largely centered on core electronics. The Diversified Manufacturing
     > Services (DMS) segment is focused on providing engineering solutions, with
     > an emphasis on material sciences, technologies, and healthcare.

Since 2015, this large-size company grows sales and earnings at annualized rates of 9.6% and 30.6% (including -$0.01 EPS in ’14 boosts the latter to 83.6%; ’21 EPS, down 80.7% YOY due to COVID, is excluded). Sales are mostly up and straight, but YOY EPS declines in ’16, ’17, ’18, and ’23 make visual inspection questionable (9-year R^2 = 0.62). FY ends Aug 31.

Over the past decade, PTPM trails peer and industry averages despite increasing from 0.5% (’14) to 3.6% (’23) with a last-5-year mean of 2.7%. ROE leads peer and industry averages (mostly due to last three years) while increasing from 0% (’14) to 28.9% (’23) with a last-5-year mean of 23.5%. Debt-to-Capital is above peer and industry averages while climbing from 42.9% (’14) to 53.1% (’23) with a last-5-year mean of 58.5%.

Quick Ratio is 0.6 and Interest Coverage is 11.0. Value Line gives a B++ grade for Financial Strength.

With regard to sales growth:

• YF projects YOY 17.9% contraction and 3.4% growth for ’24 and ’25, respectively (based on 10 analysts).
• Zacks projects YOY 17.9% contraction and 3.9% growth for ’24 and ’25, respectively (3 analysts).
• Value Line projects 2.1% annualized growth from ’23-’28.
• CFRA projects contraction of 17.8% YOY and 7.5% per year for ’24 and ’23-’25, respectively.
• M* gives a 2-year ACE of 7.9% annualized contraction.

I am forecasting flat sales growth: less than the long-term estimate given near-term projections of contraction.

With regard to EPS growth:

• MarketWatch projects 11.5% and 11.8% per year for ’23-’25 and ’23-’26, respectively (based on 12 analysts).
• Nasdaq.com projects 29.7% YOY for 2025 (3 analysts).
• Seeking Alpha projects 4-year annualized growth of 10.3%.
• YF projects YOY 3.0% contraction and 22.8% growth for ’24 and ’25 (9) along with 5-year annualized growth of 12.5%.
• Zacks projects YOY 3.2% contraction and 26.8% growth for ’24 and ’25 (4) along with 5-year growth of 10.3%/year.
• Value Line projects 13.8% annualized growth from ’23-’28.
• CFRA projects 3.4% YOY contraction and 9.1% growth per year for ’24 and ’23-’25 along with a 3-year CAGR of 11.0%.

My 9.0% per year forecast is below the long-term estimate range (mean of four: 11.7%). Initial value is ’23 EPS of $6.02/share (down 12.8% YOY) rather than 2024 Q2 $11.65 (annualized).

My Forecast High P/E is 15.0. Over the past decade, high P/E ranges from 10.5 in ’22 to 64.8 in ’18 (’17 and ’18 much higher due to depressed earnings; I am excluding 126 in ’20) for a last-5-year mean of 15.4 and a last-5-year-mean average P/E of 12.0 (also excluding 50.4 low P/E in ’20). I am forecasting toward the lower end of the range [’22 and ’23 (13.8) are less].

My Forecast Low P/E is 8.0. Over the past decade, low P/E ranges from 6.6 in ’21 to 48.4 in ’18 (’17 and ’18 much higher due to depressed earnings; I am excluding 50.4 in ’20) with a last-5-year mean of 8.7. I am just below the 5-year median of 8.2.

My Low Stock Price Forecast (LSPF) is $88.00. Default based on initial value is unreasonably low at 61.8% less than the previous close. My forecast is 30.3% less than the previous close and 12.2% less than the 52-week low.

Over the past decade, the lowest (highest) Payout Ratio (PR) is 4.6% (91.4%) in ’22 (’20). I am forecasting just below the range at 4.0%.

These inputs land JBL in the HOLD zone with an U/D ratio of 0.4. Total Annualized Return (TAR) is 2.5%.

PAR (using Forecast Average—not High—P/E) is unacceptable for any size company at -2.7%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead. Even that falls far short of the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 13 studies (my study and 5 other outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.0%, 7.9%, 17.0, 8.7, and 24.6%. I am lower on all except for the second (9.0%). Value Line’s projected average annual P/E of 16.0 is higher than MS (12.9) and higher than mine (11.5).

MS high / low EPS are $12.69 / $6.02 versus my $9.26/ $6.02 (per share). My high EPS is less due to a lower initial value ($6.02 is median while mean is $8.43; large discrepancies are more likely with low sample sizes). Value Line projects $16.50/share for high EPS, which soars above the others.

MS LSPF of $76.10 implies a Forecast Low P/E of 12.6: higher than the above-stated 8.7. MS LSPF is 45.3% greater (large discrepancy suggests others also used a manual override to higher values) than default $6.02/share * 8.7 = $52.37 resulting in more aggressive zoning. MS LSPF is 13.5% less than mine, however.

I believe MOS in this study is moderate. TAR (over 15.0% preferred) much less than MS 13.9% gets less emphasis due to a small sample size. My forecast EPS growth rate ends up higher than that small sample. Furthermore, I use a median Forecast Low P/E then still do a LSPF override.

With regard to valuation, PEG is 1.5 and 1.1 per Zacks and my projected P/E, respectively: relatively close and reasonable. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is fair at 0.9.

I am admittedly surprised by the limited current investment potential for JBL. I cannot overlook the stock’s 12-month climb of 33% (per Value Line), though, which will usually put BUY in the rearview mirror. EPS inconsistency led to ambivalence with one choice dramatically impacting results. Also pertaining to the latter was exclusion of [historical P/E] values that changes 5-year-mean high P/E in addition to 5-year-mean average P/E.

Moral of the story (once again): seek out high-quality stocks that definitively pass visual inspection. This one does not.

U/D has JBL a BUY under $100/share. The stock needs to approach $70 in order to meet the BI TAR criterion given a forecast high price ~$139.