US Manufacturing And India Expansion Will Unlock New Markets

Key Takeaways

• Jabil's U.S. manufacturing flexibility positions it to capitalize on tariff shifts, supporting revenue and strategic relocation benefits.
  
• Expansions in India and AI markets, along with pharmaceutical acquisitions, signal robust future growth in diverse high-potential sectors.
  
• Weakness in key segments, inventory challenges, and tariff uncertainties may pressure Jabil's revenue growth, profitability, and cash flows.

Catalysts

Provides manufacturing services and solutions worldwide.

• Jabil's significant U.S. manufacturing footprint positions it well to benefit from potential tariff changes, allowing it to maintain and possibly grow revenue through strategic relocation of manufacturing activities.
  
• The expansion in India, particularly in Gujarat, to support photonics capabilities indicates growth potential in a promising market, likely enhancing future revenues from domestic demand and infrastructure projects.
  
• Jabil's acquisition of Pharmaceutics International, Inc. opens access to a $20 billion market, suggesting potential revenue growth and improved margins by expanding its pharmaceutical solutions offering.
  
• Strong demand in AI-related markets, with expected revenue growth of 40% year-on-year, indicates significant potential to drive future revenue and improve operating margins through an expanded share of high-growth technology sectors.
  
• The anticipated $1.2 billion in free cash flow generation suggests sound financial health, providing flexibility for share buybacks or strategic investments to further enhance earnings per share growth.

Jabil Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jabil's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 3.7% in 3 years time.
• Analysts expect earnings to reach $1.3 billion (and earnings per share of $12.57) by about September 2028, up from $577.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2028 earnings, down from 38.9x today. This future PE is lower than the current PE for the US Electronic industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 4.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.57%, as per the Simply Wall St company report.

Jabil Future Earnings Per Share Growth

Risks

• Weakness in the renewable energy and EV markets has led to an 8% year-over-year revenue decline in the Regulated Industries segment, potentially impacting revenue growth and profitability.
  
• The Connected Living & Digital Commerce segment experienced a 13% year-on-year revenue decline, mainly due to the Mobility divestiture and weaker demand for consumer-driven Connected Living products, which could affect overall revenue and margins.
  
• Inventory days increased slightly above the company's targeted range, contributing to potential cash flow pressures and affecting net margins if not normalized.
  
• Potential tariffs involving China, Canada, and Mexico, and the uncertainty of reciprocal tariffs could affect end customer demand, impacting future revenues and operating income.
  
• Continued caution in the EV market and lack of recovery in the renewable energy space pose risks to future revenue stability and net margins, particularly if these markets do not rebound as expected.

Valuation

• The analysts have a consensus price target of $227.5 for Jabil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $256.0, and the most bearish reporting a price target of just $176.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $34.3 billion, earnings will come to $1.3 billion, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 8.6%.
• Given the current share price of $209.22, the analyst price target of $227.5 is 8.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.