Apple Parts Supplier Jabil Circuit Looks To Extend Earnings Winning Streak

NEW YORK (TheStreet) -- Contract electronics manufacturer Jabil Circuit (JBL), which makes phone casings for Apple's (AAPL) iPhone 6 and other devices, will report third-quarter earnings Wednesday after the closing bell.

Buoyed by the strong global demand for iPhones, which has helped Apple gain global market share in both hardware and its iOS platform, Jabil has been able to beat analysts' average earnings estimates for four consecutive quarters. And in the past three quarters, Jabil, headquartered in St. Petersburg, Fla., has exceeded Wall Street's guidance. So I wouldn't bet on that streak ending Wednesday.

For the quarter that ended May, Jabil is projected to earn 49 cents per share, reversing last year's 6-cent loss, while revenue of $4.46 billion calls for a 17% year-over-year climb. For the full year, ending August, earnings are projected to climb 281% to $2.02 per share, topping last year's earnings of 53 cents. Revenue is projected to be $18 billion, up better than 14%.

All told, what's good for Apple is certain to be a boon for Jabil, as evidenced by the projected 281% surge in full-year earnings. And this has shown in Jabil shares, up 8% in 2015 and 16% just in the last six months.

Like shares of other Apple parts suppliers Avago Technologies (AVGO) (up 40% in 2915) and Skyworks Solutions (SKWS) (up 40% in 2915), Jabil has ridden the coattails of the world's most valuable company. And if you're thinking of taking profits now, think again. Just to be safe, think a third time.

Why? With analysts still projecting strong demand for both the iPhone 6 and 6 Plus, Jabil, which has also beaten its revenue targets for five consecutive quarters, should benefit from Apple's momentum.

As the world’s third largest producer of electronic components, offering design, production, and product management services to companies around the globe, Jabil is more than just a proxy play on Apple.

Not only is Jabil a leader in the realm of electronics manufacturing service (EMS) business, the company is evolving to areas like diversified manufacturing services (DMS). The latter is Jabil's largest business segment, accounting for roughly 40% of its revenue. That business makes the phone casings for not only Apple's iPhones but also has such customers as BlackBerry (BBRY) and Cisco Systems (CSCO).

From my vantage point, as Jabil grows its DMS capabilities, it can also become more prominent in high-growth markets, like the Internet of Things. So, while JBL stock may not appear cheap today at around $24 and trading at 44 times earnings (against a P/E of 21 for the S&P 500), there are plenty of growth opportunities ahead, thus making JBL shares attractive ahead of Wednesday's results.

Plus, based on fiscal 2016 consensus earnings estimates of $2.37 per share, Jabil's P/E drops to 10, against a forward P/E of 17 for the S&P 500. And with Jabil's track record of raising its business outlook, there's just as much risk in not owning the shares as there is in buying today. And Wednesday's earnings results can be the catalyst to extend the upward climb in JBL stock.

This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.

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