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Jabil Circuit's Taking a Jab at the Market

NEW YORK ( TheStreet) -- There are always good reasons to take profits on any investment, and it always amazes me how the Street can discriminate, whenever it seems convenient, about what it thinks a company will do from one quarter to the next.

Jabil Circuit (JBL - Get Report) has had a tough time earning investors' respect because the selloff that followed after the company delivered record revenues, while posting more than $1 billion in cash flow, seemed very narrow-minded. So I've begun to notice a pattern.

Jabil has a strong electronics manufacturing service (EMS) business and is working hard to branch off into (what it calls) diversified manufacturing services (DMS). I won't deny that this transition, which has now spanned more than 12 months, has taken a bit longer that investors expected. To the extent that this delay justifies a recent downgrade to "strong sell" by research firm Zacks, I don't believe it does.

Look, I didn't blame the Street for bailing on the stock following the June quarter. This time, Jabil delivered everything it promised and then some including an 11% year-over-year increase in revenue, which arrived in record territory of $4.81 billion. In terms of core earnings, the company did beat Street estimates by 13%, posting 61 cents a share versus estimates of 54 cents a share.

It's true that the revenue guidance range, of $4.35 billion to $4.65 billion, was lower-than-expected, and I'm not going to pretend to be pleased with management's low-end target for core earnings-per-share of 50 cents. However, given all the political wrangling going on, regarding the shutdown of our government, who isn't offering downbeat guidance these days?

Even though Jabil has (among others) Apple (AAPL - Get Report) and Cisco (CSCO) as key customers, there isn't much management can do if demand in IT spending isn't there. The good news is that Jabil, by virtue of its strong market position in other categories like health care and automotive, is able to stem the tide until better days arrive.

We'll certainly know more of what to make of management's guidance, once rivals like Flextronics (FLEX) and Sanmina (SANM) reports later this month. In the meantime, though, it's clear that the company's management has no interest in setting the company up for disappointment just to appease Street doubters.

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