Jabil Circuit Inc. (JBL) recently announced that it has completed the acquisition of Clinton, Mass.-based privately-held Nypro Inc for $665.0 million.
Nypro manufactures precision plastic products for customers in the healthcare, packaging and consumer electronics sector. Nypro has 20 manufacturing units in almost 10 countries, employs a workforce of approximately 10K and generates annual revenues of more than $1.2 billion.
Nypro has three principal business units namely healthcare (45.0% of revenues), rigid plastic packaging (23.0% of revenues) and consumer electronics (32.0% of revenues). The company has a strong presence in Americas and Asia.
The acquisition will boost Jabil’s position in key markets such as healthcare (approximately $65.0 billion addressable market). Moreover, the acquisition will help Jabil to penetrate the fast growing packaging market (approximately $140.0 billion addressable market).
Nypro’s consumer electronics segment will be integrated into Jabil’s materials technology services. Jabil plans to retain the Nypro trade name and jointly market its services in the healthcare and packaging industry.
Over the years, acquisitions have been a key growth driver for Jabil. We believe that the Nypro acquisition not only diversifies Jabil’s business operations but also lowers customer concentration.
Although Jabil is not a frequent acquirer, we believe that the company, based on its healthy cash balance, will continue to pursue acquisitions that strategically fit into its operations. At the end of third quarter of 2013, cash and cash equivalents were $1.35 billion, up from $1.06 billion in the previous quarter.
Jabil expects the acquisition to be accretive to fiscal 2014 earnings. The company expects to earn $2.77 per share in fiscal 2014, driven by strong growth from the Nypro acquisition (16 to 22 cents), restructuring benefits (11 to 15 cents) and organic growth (11 to 31 cents).
We believe that strong growth from the Nypro acquisition, restructuring benefits and new customer wins will help Jabil to compete with Flextronics (FLEX) and Benchmark Electronics (BHE) going forward. Jabil’s increasing association with Apple (AAPL) is also expected to boost its growth prospects in the near term.
However, we believe that Jabil will continue to face macroeconomic headwinds in the near term. The company continues to invest in the diversified manufacturing segment, which will increase its capital expenditure going forward.
Currently, Jabil Circuit has a Zacks Rank #3 (Hold).
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