Challenges In EV Demand And Customer Retention May Offset Gains From New Markets And Technology Innovation

Key Takeaways

• This text focuses on privacy and data security assurances provided by AI.
  
• It emphasizes AI's limitations in accessing personal data and its commitment to user privacy.
  
• Tariffs and competition affect key segments like automotive and cloud infrastructure, with underutilized investments and political uncertainties further impacting revenue and margins.

Catalysts

Provides manufacturing services and solutions worldwide.

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Assumptions

• Analysts are assuming Jabil's revenue will decrease by 0.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.8% today to 3.0% in 3 years time.
• Analysts expect earnings to reach $893.7 million (and earnings per share of $8.83) by about November 2027, down from $1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.3x on those 2027 earnings, up from 10.5x today. This future PE is lower than the current PE for the US Electronic industry at 22.7x.
• Analysts expect the number of shares outstanding to decline by 3.57% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.51%, as per the Simply Wall St company report.

Risks

• There's concern over the impact of tariffs and government incentives on the automotive industry, affecting demand for electric vehicles (EVs) and causing program pushouts, potentially impacting revenue growth in this segment.
  
• The exit of a major networking customer, representing $700 million in revenue, suggests challenges in maintaining certain customer relationships which can affect future revenues and net margins.
  
• High levels of capacity not fully utilized, particularly noted with investments in new facilities like those in Croatia and the Dominican Republic, may impact operating margins due to underutilization.
  
• Competitive pressures in cloud and data center infrastructure, including pricing, could affect margins despite new customer wins in optical solutions.
  
• The reliance on the election outcomes, especially in the renewables and infrastructure end markets, introduces uncertainty in demand forecasting and potential impact on future revenues.

Valuation

• The analysts have a consensus price target of $144.88 for Jabil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $160.0, and the most bearish reporting a price target of just $128.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $29.6 billion, earnings will come to $893.7 million, and it would be trading on a PE ratio of 20.3x, assuming you use a discount rate of 7.5%.
• Given the current share price of $128.66, the analyst's price target of $144.88 is 11.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.