Q2 Preview: Jabil (JBL) Should Hold Strong as Optical OEM Spending Slows; Q3 Outlook in Focus

Jabil Circuit (NYSE: JBL) shares are trading lower ahead of the company's second-quarter 2011 earnings release, expected out after the market closes. Shares are down 1.3% this afternoon.

Jabil is expected to report EPS of $0.51 on revs of $3.91 billion. In Q111, the St Petersburg, FL-based electronics manufacturer posted EPS of $0.61 with revenue of $4.08 billion, beating out the Street consensus.

Looking back at Q210, Jabil produced EPS of $0.29 coupled with revs of $3 billion, mixed to the Street's expectations for EPS of $0.28 and revs of $3.1 billion.

Shares gained 39% through the three-month period, to $21.43 at the end of February. Shares are down 9% since then, and closed out 2010 about 16% better.

A simple valuation pegs Jabil with a forward P/E of 7.7x FY12 EPS estimates, compared to 7x for Flextronics International Ltd. (Nasdaq: FLEX) and 8.8x at Celestica Inc. (NYSE: CLS).

Data from Bloomberg has 12 analysts with a Buy on Jabil, 3 with a Hold, and none suggesting to Sell. The analyst price target average is $25.00, with a high of $30.00 and low of $19.50. Shares have traded in a range of $23.09 - $10.12 over the last 52-weeks.

Summary
Jabil guided for Q211 EPS of $0.49 - $0.53 with revs of $3.85 - $3.95 billion, which was ahead of the consensus at the time.

• Goldman Sachs is expecting EPS of $0.51 and revs of $3.92 billion. Goldman said "expectations for better-than-normal seasonal growth are influenced in part by increasing contribution from diversified manufacturing services (DMS, 34% of sales today compared to 20% five year ago), where revenue growth tends to be more secular than seasonal." Goldman was suggesting that investors add to their positions ahead of earnings tonight based on a more positive bias to earnings noting that they think "Street estimates [will] be revised up post the report, while [Jabil] shares have been weak on company specific (the purchase of three former facilities in Europe) and macro concerns, resulting in a favorable set-up."
  
  Goldman has a Buy on the shares with a price target of $25.
  
  
• Deutsche Bank is looking for in-line results to the Street's outlook, with EPS of $0.51 and revs of $3.91 billion. Deutsche comments "recent concerns about a push out in optical and slower defense spending are unlikely to impact JBL's Q, which ended in Feb. We expect growth to continue to be driven by [Jabil's] Diversified Manufacturing Services (DMS) segment, with High Velocity Systems (HVS) seeing a seasonal decline."
  
  Looking ahead, Deutsche is expecting guidance from Jabil that is in line with the Street, though they have concerns that recent optical slowdowns could be a larger indicator of slower spending by telecom OEMs. the analysts also do not see a major impact from Japan, where the company draws less than 1% of revenue.
  
  Deutsche has a Hold on the stock, with a price target of $19.50.
  
  
• Collins Stewart is looking for EPS of $0.51 and revs of $3.90 billion in revenue. The firm notes that all data points suggest that quarterly results have tracked in line with expectations.
  
  Looking ahead, Collins expects Jabil to issue better than expected guidance for Q311. Concerns come in when Jabil reacquired European plants, which will translate to a $25 - $40 million charge, add about $50 - $70 million in revs through the quarter, but might have a negative impact on earnings if margins are break-even or worse.
  
  Collins Stewart has a Buy rating on Jabil Circuit, with a price target of $23.

Jabil Circuit is expected to release their Q211 earnings on Tuesday, March 22, 2011, at approximately 4:00pm EDT. Stay tuned to StreetInsider.com's href="http://www.streetinsider.com/portal/Earnings+Insider/5.html">EPS
Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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