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Buy Jabil Circuit Ahead of Earnings

NEW YORK ( TheStreet) -- Jabil Circuit (JBL - Get Report), which will report fiscal fourth-quarter results on Wednesday, still seems misunderstood.

Jabil, which has (among others) Apple (AAPL) and Cisco (CSCO) as very important customers, is without a doubt one of the best brands in the electronics manufacturing service (EMS) business. But the company has been working over the past couple of years to branch out of that business and into what it calls diversified manufacturing service, or DMS.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12043481/1/iphone-5s-teardown-whats-inside.html"><em>iPhone 5S Teardown: What's Inside</em></a>]

On many levels, the fact the company wants to build its capabilities in this new area makes plenty of sense, especially considering Jabil can then become an even more important supplier to Apple. The thing is, however, this transition has gone on much longer than investors expected. Therefore, with seemingly very little progress in the company's changeover, the stock had not gone anywhere for almost a year.

Back in June I told you that shares of Jabil, which at the time were trading at around $19, were too cheap to ignore. In that article , I pointed out the stock could reach the range of $25 to $27 per share, assuming that Jabil could deliver modest, free-cash-flow growth and 4% to 6% revenue growth. Considering that Jabil was coming off of a very disappointing quarter, my optimism wasn't well received.

However, I will admit: It certainly didn't help the company missed third-quarter revenue estimates -- let me just get that out of the way. The fact that management issued lower-than-expected guidance roughly 2% shy of expectations was a 1-2-punch tough to overcome. Even so, since that article shares of Jabil have advanced by as much as 22.5%, reaching a high of $24.32 two weeks ago.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/video/12044202/teslas-model-s-a-dream-to-drive.html"><em>Tesla's Model S: A Dream to Drive</em></a>]

Now, I'm not here to toot my own horn nor suggest that I had any special insight as to the company's future plans. After all, the stock still has slightly less than 3% higher to go before reaching the low end of my $25 target. What I want to clue you in on is why I was so confident three months ago and why I still believe the stock will reach the high end of my $27 target.
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