Jabil's Strong Outlook Hinges On Growth In Key Markets: Analyst's Spotlight On AI-focused Business

Stifel analyst Matthew Sheerin reiterated a Buy rating on Jabil Inc. JBL, raising the price target to $135 from $120.

Jabil reported Q4 FY23 revenue of $8.46 billion, missing the consensus estimate of $8.54 billion. Diversified Manufacturing Services (DMS) revenue remained consistent, and Electronics Manufacturing Services (EMS) revenue declined by 13% Y/Y.

Sheerin applauds Jabil's FY24 outlook across key growth segments, including 20% growth in its auto/transport and industrial segments, 9% growth in healthcare, and 20% volume growth in the cloud.

The analyst notes that those segments will offset continued weakness in consumer-facing markets and parts of datacom. 

About 20%-25% of JBL's cloud business is linked to AI, expected to grow in FY25, driven by end-to-end solutions spanning from traditional rack configuration and integration to AI-focused co-engineering capabilities, the analyst adds.

The analyst adds that Jabil plans to spend $2.5 billion in share repurchases, promising to drive double-digit EPS growth in FY24 and FY25.

This apart, Jabil is focusing on more complex, higher-growth end markets like EV auto, healthcare, cloud, and renewable energy, enabling the company to expand margins.

The analyst thinks Jabil benefits from working capital improvements (Inventory declined, resulting in lower-than-anticipated interest expense).

Price Action: JBL shares are trading higher by 1.39% to $126.68 on the last check Friday.