Jabil Circuit Inc.
(
JBL
) recently announced that it has completed the acquisition of
Texas-based Telmar Network Technology, Inc., a global provider of
after market services to communication network service providers,
enterprise and original equipment manufacturers (OEM).
The acquisition will enable Jabil to develop a multi-vendor
after-market services platform, which will provide end-to-end
network maintenance services, thereby enhancing the operating
efficiency of its customers.
The company intends to integrate Telmar's business within its
Diversified Manufacturing Services (DMS) segment. The DMS segment
caters to the fast growing emerging sectors of healthcare &
instrumentation, industrial and clean tech. These sectors
contributed significantly to top-line growth, which increased 43.0%
year over year to $1.7 billion in fiscal 2011.
Jabil has been focusing on expanding its high-margin DMS
business over the last couple of years, and this has resulted in a
higher contribution to the total revenue (up to 36.0% from 29.0%).
This has also boosted its core operating margin, which expanded 100
basis points over the same period.
Jabil forecasts DMS revenue to increase 3.0% sequentially for
the first quarterof 2012. We believe the improvement in the after
market services business based on this acquisition will expand
Jabil's customer base, thereby driving top-line growth over the
long term. The acquisition is also expected to boost Jabil's
competitive edge over its peers such as
Flextronics Inc.
(
FLEX
) and
Sanmina-SCI Corp.
(
SANM
).
Our Take
Jabil reported strong results in the fourth quarter, beating the
Zacks Consensus Estimate by a nickel. Revenue increased 11.0% year
over year to $4.28 billion in the fourth quarter of 2011 and was
well above the Zacks Consensus Estimate of $4.18 billion. For
further details please see
Jabil Beats on Lower Costs
.
Jabil is expected to benefit from strong growth in the Mobility,
Aerospace and Defense, Healthcare, Instrumentation and Industrial,
Clean Tech, Networking and Storage segments over the long term.
Moreover, a lean cost structure, strong cash flow generation
capabilities, an expanding global business and an improving balance
sheet are positives for the stock.
However, we believe that the volatile macro environment in
Europe will remain an overhang on the stock in the near term. We
maintain a Neutral rating on Jabil over the long term (6-12
months).
Currently, Jabil has a Zacks #3 Rank, which implies a Hold
rating on a short-term basis.
FLEXTRONIC INTL (
FLEX
): Free Stock Analysis Report
JABIL CIRCUIT (
JBL
): Free Stock Analysis Report
SANMINA-SCI CP (
SANM
): Free Stock Analysis Report
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