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) 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) 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.

Lost in the hysteria over the company's guidance was that this was essentially the same strategy applied in the June quarter. The Street has conveniently dismissed that Jabil issued weak guidance at that time. Yet the stock price still managed to climb 23% in the three months that followed, essentially correcting its own overreaction.

I'm not going to tell you that this same thing will to happen this time. But what I do know is that Jabil has now posted four consecutive quarters of revenue growth and the company has now demonstrated strong profitability in the span of eight quarters. There aren't many companies that can boast about numbers like that, especially amid a tough IT spending environment.

On top of all of that, the company just announced that it will return nearly $200 million in capital to shareholders through dividends and share buybacks. On many levels, this is one of the best well-run manufacturing services company today in the outsourcing space, even with Zacks' downgrade.

While the outsourcing market continues to be a tough industry to appraise, very few companies in any sector are executing as well as Jabil. With record revenues and improving cash flow, I see this stock now heading to $30. Smart investors would do well to buy on this recent overreaction.

At the time of publication, the author held shares of Apple.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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