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Jabil Is Still in Transition

NEW YORK ( TheStreet) -- The last time I talked about Jabil Circuit (JBL - Get Report) I said the company was going to remain in a "holding pattern" for the foreseeable future. I didn't believe it was going to take this long.

The company is in the midst of a very important transition that has been going on for almost a year. Although Jabil is one of the best brands in the electronics manufacturing service (EMS) business, the company has bigger ambitions including building its capabilities in diversified manufacturing, an area where (among others) Apple (AAPL) is a very important customer.

Unfortunately, entering the diversified manufacturing space has come at a pretty significant cost to shareholders. After trading as high as $27.40 a year ago, the stock has fallen to $16.39 two months ago -- losing as much as 40%. I don't believe this trading pattern will remain this way indefinitely. Investors, however, remain unsure.

I don't doubt Jabil is making the right transition and taking the necessary steps to ensure its long-term viability, but I do question the aggressiveness and the toll it has taken on Jabil's core business. With third-quarter earnings due out on Wednesday, management will have a chance to change the stock's near-term trajectory.

The Street will be looking for 54 cents in earnings per share on revenue of $4.40 billion, which would represent year-over-year revenue growth of 3.5%. I think that's a bit conservative and I expect Jabil to come on the high end of its revenue guidance -- closer to $4.5 billion.

Jabil is coming off a solid second quarter during which revenue advanced 4.2% year over year to $4.42 billion. Management said the better-than-expected results were principally due to strong performance from the Diversified Manufacturing and Enterprise & Infrastructure segments, which fully offset a weak performance from the High Velocity segment.

Given the criticism that Jabil has taken, this suggests strong execution by management. Just maybe, patient investors are about to be rewarded. Assuming this momentum continues, it wouldn't surprise me to see Jabil's revenue growth for this quarter arrive closer to 4.5% to 5%.

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