Jabil's Valuation 'Intriguing,' Analyst Says Following Q1 Beat, Strong Guidance

Shares of contract electronics manufacturer Jabil Inc (NYSE: JBL) are trending higher Wednesday in reaction to the company's fiscal-year first-quarter results Tuesday after the close.

Jabil reported Q1 non-GAAP earnings per share of 90 cents compared to 80 cents a year-ago, ahead of the 88 cents consensus. Revenues climbed 16.5 percent to $6.5 billion.

The company expects Q2 net revenues of $5.8 billion to $6.4 billion and non-GAAP EPS of 51 cents-71 cents. This compares to the consensus estimate that calls for revenues of $5.81 billion and EPS of 61 cents.

"We expect this positive momentum to continue into our second quarter driven by strength in end-markets like automotive, cloud, healthcare and 5G wireless," CEO Mark Mondello said.

Commenting on the results, Raymond James analyst Adam Tindle maintained a Market Perform rating on Jabil.

The Thesis

The results reflected strong revenue upside but minimal operating leverage amid a very robust growth environment, Tindle said in a note.

The analyst foresees a "low 3 percent year-over-year contribution margin" implied for 2019, with some of the weakness traced back to weakness in capital equipment. The company expects an improvement in the second half of 2019, he said.

Tindle also noted incremental challenges arising out of the potential for slowing core growth.

"Net, while valuation is intriguing, we await more confidence in the combination of stable core trends and programs ramping from losses to profitability implied in 2H guidance," he wrote in the note.

Raymond James said a higher mix of areas such as health care, auto and incremental growth in these areas will help improve margin profile toward the company's 4 percent long-term operating margin goal.

The stock traded up 6 percent to $23.56 at time of publication.

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