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Jabil

US Manufacturing And India Expansion Will Unlock New Markets

AN
Consensus Narrative from 8 Analysts
Published
29 Sep 24
Updated
02 Apr 25
Share
AnalystConsensusTarget's Fair Value
US$171.01
27.8% undervalued intrinsic discount
02 Apr
US$123.49
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1Y
-9.1%
7D
-11.4%

Author's Valuation

US$171.0

27.8% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Key Takeaways

  • Jabil's U.S. manufacturing flexibility positions it to capitalize on tariff shifts, supporting revenue and strategic relocation benefits.
  • Expansions in India and AI markets, along with pharmaceutical acquisitions, signal robust future growth in diverse high-potential sectors.
  • Weakness in key segments, inventory challenges, and tariff uncertainties may pressure Jabil's revenue growth, profitability, and cash flows.

Catalysts

About Jabil
    Provides manufacturing services and solutions worldwide.
What are the underlying business or industry changes driving this perspective?
  • Jabil's significant U.S. manufacturing footprint positions it well to benefit from potential tariff changes, allowing it to maintain and possibly grow revenue through strategic relocation of manufacturing activities.
  • The expansion in India, particularly in Gujarat, to support photonics capabilities indicates growth potential in a promising market, likely enhancing future revenues from domestic demand and infrastructure projects.
  • Jabil's acquisition of Pharmaceutics International, Inc. opens access to a $20 billion market, suggesting potential revenue growth and improved margins by expanding its pharmaceutical solutions offering.
  • Strong demand in AI-related markets, with expected revenue growth of 40% year-on-year, indicates significant potential to drive future revenue and improve operating margins through an expanded share of high-growth technology sectors.
  • The anticipated $1.2 billion in free cash flow generation suggests sound financial health, providing flexibility for share buybacks or strategic investments to further enhance earnings per share growth.

Jabil Earnings and Revenue Growth

Jabil Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Jabil's revenue will grow by 4.5% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 1.8% today to 3.4% in 3 years time.
  • Analysts expect earnings to reach $1.1 billion (and earnings per share of $8.89) by about April 2028, up from $484.0 million today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, down from 30.9x today. This future PE is lower than the current PE for the US Electronic industry at 20.9x.
  • Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

Jabil Future Earnings Per Share Growth

Jabil Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Weakness in the renewable energy and EV markets has led to an 8% year-over-year revenue decline in the Regulated Industries segment, potentially impacting revenue growth and profitability.
  • The Connected Living & Digital Commerce segment experienced a 13% year-on-year revenue decline, mainly due to the Mobility divestiture and weaker demand for consumer-driven Connected Living products, which could affect overall revenue and margins.
  • Inventory days increased slightly above the company's targeted range, contributing to potential cash flow pressures and affecting net margins if not normalized.
  • Potential tariffs involving China, Canada, and Mexico, and the uncertainty of reciprocal tariffs could affect end customer demand, impacting future revenues and operating income.
  • Continued caution in the EV market and lack of recovery in the renewable energy space pose risks to future revenue stability and net margins, particularly if these markets do not rebound as expected.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $171.014 for Jabil based on their expectations of its future earnings growth, profit margins and other risk factors.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $31.3 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 7.9%.
  • Given the current share price of $136.42, the analyst price target of $171.01 is 20.2% higher.
  • 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.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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