Has Jabil Circuit Fallen Too Far? (JBL)

Jabil Circuit's stock was pounded when it told the market that its next quater would be slightly weaker that forecast due to higher than expected costs at its electromechanical business. The stock sold down to close to $23, well below the 12-month high of $43.70.

The provider of electronic manufacturing services had been doing quite well. Growth over the last three fiscal years (August 31) has been impressive with revenue moving from $4.7 billion in 2003 to $7.5 billion in 2005. Revenue in the February 2005 quarter was $2.3 billion and operating income was over $83 million. When the company cut is guidance, it reiterated that the quarterly numbers, that will be announced today, would still show revenue of $2.4 to $2.5 billion. So, Jabil is one its way to a fiscal year that will have revenue of nearly $10 billion.

The operational problems at the electromechanical business are likely to be fixed in the next quarter. If so, a drop of nearly 50% in the stock price from its high is probably not justified.
The company has almost $800 million in cash and debt of about $300 million. The market cap, that was about one times revenue is now at .6 times revenue.

With a company that is doing well, that valuation is almost certainly too low.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does now own securities in companies he writes about.