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Last Chance to Buy Low on Apple Supplier Jabil Circuit

Stocks in this article: JBL AAPL CSCO BBRY

NEW YORK ( TheStreet) -- Since the start of 2014, Jabil Circuit (JBL) has traded in a tight range between $17 and $18 a share. With a close at $18 Monday, the stock is down 3.6% on the year to date.

Next to the Dow, which is down 3% year to date, Jabil's relative performance isn't so bad. But expand that horizon by six months, and the company's stock is down almost 25%.

The company has had a tough time growing earnings and revenue. This is even though it has the benefit of being a parts supplier to the likes of Apple (AAPL) and Cisco (CSCO). The problem has been weak demand.

There isn't anything management can do if IT spending isn't there. Growth can't be manufactured out of thin air. Although the company absorbed some criticism for ending its relationship with BlackBerry (BBRY), it's not as if BlackBerry ties have been fruitful.

Jabil will report fiscal second-quarter earnings Wednesday. Management needs to convince investors of two things. First and foremost, management will need to set out a clear plan to get revenue heading back in the right direction. This may be a challenge.

In the December quarter, management announced that it has divested its aftermarket segment, which is expected to impede growth for this quarter and possibly next. Management estimated revenue to be in the range of $3.5 billion to $3.7 billion, down 17.0% year over year.

Although management has done a solid job of communicating the company's transition into what is known as diversified manufacturing services, investors are impatient for expected results that haven't arrived.

While the electronics manufacturing service business seems strong, over the past twelve months, growth has sputtered. And as noted, since the middle of the September, investors have sold off their shares. The impact in the stock is significant and Jabil must figure out how to regain respect.

Management also needs to fatten the bottom line. The company expects non-GAAP earnings to be between 5 cents and 15 cents per share. The Street will be looking for 11 cents per share.

The company doesn't have to hit earnings for the stock to react well. Given the 6-month reversal, the bad news seems already priced in. As it stands, Jabil only needs to meet its earnings target and offer guidance that shows management has some confidence in its business.

Although investors have abandoned the stock, Goldman Sachs analyst Mark Delaney still believes in the company. While upgrading the stock from neutral to "conviction buy," Delaney has $20 price target on the stock and believes that Jabil is too cheap to pass up. He sees earnings growth on the horizon starting in 2015 and beyond.

Earnings earning per share expected to decline 21% this quarter, Delaney seems a bit too optimistic. There's a reason why management guided 5 cents per share on the low end. This 10-cent range doesn't suggest that they know exactly where earnings will be this quarter or next.

The good news is that Jabil, by virtue of its strong market position in other categories like healthcare and automotive, is able to stem the tide until better days arrive. With the stock at $18 and a price-to-earnings ratio of 9, these shares look like a bargain. But it's going to take several more quarters for management to generate any value. Wednesday may be the beginning.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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