Can Jabil Circuit (JBL) Pull a Surprise in Q1 Earnings?

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Jabil Circuit Inc.JBL is set to release first quarter fiscal 2016 results on Dec 16, after the closing bell. Last quarter, the company delivered a positive earnings surprise of 37.14%. Jabil Circuit has delivered positive earnings surprises in the trailing four quarters, with an average surprise of 17.09%. Let's see how things are shaping up for this announcement.

Factors to Consider

Jabil Circuit's Apple connection is a big positive. Apple Inc. AAPL is Jabil's largest customer. The company produces phone casings for Apple's iPhone 6 and 6 plus. In the last reported quarter, the company benefited from sky-rocketing demand for the Apple offering. In fact, as much as 24% of the company's revenues were derived from Apple in fiscal 2015. We believe that in the near term Jabil is well positioned to gain from the rising demand for iPhones. Moreover, Jabil's DMS segment has been gaining momentum driven by the strength in mobility and lifestyle businesses.

The company's contract with ViZn Energy Systems for ramping up the production of redox flow batteries for the latter is also a big growth driver. In addition, the company completed a comprehensive restructuring program for the reallocation of manufacturing resources. The restructuring program helped the company realign its manufacturing capacity and cost base to address market conditions and customers' geographic needs.

We believe that the strong performance of non-traditional sectors, diversity in its revenue channels and a customer base spread across the world should help Jabil deliver much higher revenues and profitability going forward.

However, it is exposed to significant customer concentration risk, with its top five customers accounting for approximately 45% of its revenues. Further, we believe that the loss of BlackBerry BBRY , its second largest customer in 2013, is a significant setback for the company (especially for the EMS segment) and it will take some time to recover from this blow.

Jabil reported strong fourth quarter fiscal 2015 results with both earnings and revenues outpacing the respective Zacks Consensus Estimate. Additionally, the company gave an encouraging first quarter and fiscal 2016 guidance. Jabil expects net revenue to be in the range of $5.1 billion to $5.3 billion for the first quarter of fiscal 2016. Jabil projects core operating income in the range of $220 million to $260 million.

On a year-over-year basis, revenues from Diversified Manufacturing are expected to increase 33%, while Electronics Manufacturing Services revenues are expected to be flat year over year.

The company expects first-quarter earnings in the range of 72 cents to 88 cents per share, including 3 cents for amortization of intangibles, 10 cents of stock-based compensation expense and 1 cent to 3 cents for restructuring charges.

Earnings Whispers

Our proven model does not conclusively show that Jabil is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at earnings of 70 cents. Hence, the difference is 0.00%.

Zacks Rank : Jabil's Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

The following stock can be considered at the moment as our model shows that it has the right combination of elements to post an earnings beat in its upcoming release is

ConAgra Foods, Inc. CAG with an earnings ESP of +3.39% and a Zacks Rank #2 (Buy).

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APPLE INC (AAPL): Free Stock Analysis Report

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BLACKBERRY LTD (BBRY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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