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Bear of the Day: Jabil Circuit (JBL)

Brian Bolan

Jabil Circuit (JBL) has had a good recent history as far as earnings report go, but analysts have slashed estimates. That has impacted it Zacks Rank and to as a Zacks Rank #5 (Strong Sell) it is the Bear of the Day.

Chips for Dips?

One of the reasons I don't like chip stocks is the analysts in that space have all sorts of ways to get information from suppliers that is not readily available in other industries. That nearly insider info becomes a crutch for the analysts who rely on it yet the industry is constantly evolving.

Then there is the idea of obsolescence and how quickly chips go from the factory floor / or the fab center to the trash heap. Of course they try their best to sell them first at greatly reduced prices and then factor those sales in at 100% gross margin, as they were going to be written off anyway.

Company Description

Jabil Circuit makes electronic manufacturing services and solutions worldwide. The company offers electronics design, production, and product management services. The company's services include integrated design and engineering. Jabil Circuit, Inc. was founded in 1966 and is headquartered in St. Petersburg, Florida.

Recent Earnings History

The last few reports for the company tell the tale of why investors need to be cautious with this stock. The company has beaten the estimate in each of the last two quarters, but the stock has traded off after each. The November 2013 earnings release on December 17 of that year was a beat of $0.16 or 34% ahead of expectations. One might think that would be good for the stock, but it ended up falling 20% in the session following the release.

The release prior to that was also a beat, but again the stock traded lower by 8.8% in the session following the release.

JBK Estimates

One of the big reasons the stock has a Zack Rank #5 (Strong Sell) is that analysts have slashed earnings estimates. Following that strong beat, analysts lowered 2013 expectations from $1.93 to $0.89. The same could be said of the 2014 Zacks Consensus Estimate as it was cut from $2.31 to $1.35.

Downside Guidance

As I look at the last year and a half of earnings guidance I see six straight downside guidance for EPS. While some of the misses are only a penny or two, the most recent guidance was light by $0.42 at the midpoint.

In five of those seven events, the company also guided revenue lower as well. That makes for a toxic earnings season for this stock... a beat on the bottom line just doesn't mean that much if the company says the next quarter will not be as good as expected.

The Chart

The price and consensus chart is a very useful tool for those that believe that earnings, and earnings estimates are a major drive in stock price. The price of JBL has been fairly choppy over the last several years, and that has almost lulled investors into expecting a few big swings. The difference is that the recent guidance has pull the earnings estimates lines down well below where they used to be in relation to the stock price. That is an indication of bad things to come and tell me that investors should think about looking elsewhere.

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

Follow Brian Bolan on twitter at @BBolan1

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