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Jabil Is a Quality Tech Stock

- By Alberto Abaterusso

Investors who are looking for good opportunities in the technology sector should consider Jabil Inc. (JBL), as the U.S. global manufacturing services company is set to deliver value to its shareholders through higher sales, profit and ongoing dividend payment.

Let's start from the last element, the dividend.

Jabil has continuously distributed dividends since May 15, 2006, GuruFocus' chart illustrates below.


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Following a 14.3% increase in the cash quarterly dividend to 8 cents per ordinary share in October 2011, Jabil is distributing a total annual dividend of 32 cents. The annual distribution has remained such over the last eight years and is leading to a forward dividend yield of 1.32%. Compared to the S&P 500 index dividend yield of 2.11%, the dividend yield of Jabil is much lower but convincing for the regularity in its payment and entity. The returns are as of Friday.

It is this regularity that makes Jabil an atypical player in the technology industry as it is quite common that tech companies usually miss to offer regular dividends due to the sustainment of high costs for research and development, operational activities and business expansion. This is particularly true, not only for start-ups but also for more mature companies.

Therefore, if Jabil can be regular with the payment of dividends, it means that it is a well-established entity in the industry and its profits are predictable.

This is thanks to a well-diversified portfolio of electronics design, production, and product management services solutions that Jabil can offer to a myriad of companies operating in the most diverse industrial sectors and markets. Some of these markets are driving positive momentum in the company's top and bottom lines.

The payment of the dividend is supported by an annual sales turnover that is increasing exponentially as you can see in below chart of GuruFocus.

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Over the last five years, the item has increased according to a 5.4% annual growth rate. This is the result of corporate strategy of Jabil to diversify its business entering into new markets or industries. In fact, end-markets such as automotive, healthcare, cloud and 5G wireless are driving strong results which reflected a record revenue of $6.5 billion for first quarter of fiscal 2019 ended Nov. 30, 2018. Compared to the same trimester of fiscal 2018, the top line increased 16.5%.

The uptrend in sales should continue over the next 7 quarters and deliver an expected 12.9% increase in total annual sales to $24.94 billion in full fiscal 2019 and 4.7% increase in total annual sales to $26.1 billion in full fiscal 2020. Higher revenue will lead to higher earnings and cash flows.

For full year of 2019 expectations are corroborated by Jabil's aim to continue maximizing the wealth of its shareholders through normal growth in earnings and cash flows besides the issuing of regular dividends. Jabil will accomplish the target taking advantage from a large sales network and operations that globally spread across 28 countries and employs something like 170,000 people worldwide.

Concerning future earnings, consensus is projecting core diluted earnings to $2.99 per share for full fiscal 2019 reflecting a more than 14% from full fiscal 2018.

Analysts have gone well beyond full fiscal 2019 with their estimates predicting they will increase 12% on average every year over the next 5 years through full fiscal 2024.

GuruFocus has analysed the financial strength of Jabil's balance sheet and assigned a rating of 6 out of 10. The most relevant indicators of the financial strength are a total cash per share of $5, which is 15.5x the annual dividend, an interest coverage ratio of 3.92, a Piotroski F-Score of 7, indicating a very healthy situation, and a return on invested capital of 6.11% versus a cost of capital of 4.82%.

Sales, cash flows and earnings are rated by Wall Street with a recommendation rating of 2.6 out of 5, an average target price of $30.2 per share and can be purchased on the New York Stock Exchange at $24.49 per share. This share price made at close Friday has declined 7% so far this year and falls into a 52-week range of $23.28 to $31.77.

Jabil has a market capitalization of $3.9 billion, a price-book ratio of 2.06 versus an industry median of 1.67, a price-sales ratio of 0.17 compared to an industry median of 1.11 and a price-earnings ratio of 27.54 versus an industry median of 19.39.

The price-earnings ratio suggests passing on Jabil but not the forward PE ratio of 7.99 which instead is providing an additional insight for shareholders' value accretion through increase earnings.

Disclosure: I have no positions in any security mentioned in this article.

This article first appeared on GuruFocus.