Apple Inc. (AAPL), Jabil Circuit, Inc. (JBL): A Buying Oppurtunity in This Consumer Electronics Play?

Enterprise & Infrastructure and High Velocity Services

Enterprise & Infrastructure has been performing well with a 12% increase in the quarter, but this business has wafer thin margins. The aim is to get them to 3% by the end of the year.

As for High Velocity Services, this segment covers things like set top boxes, mobile handsets, circuit boards and automotive components. Many of these end markets have been struggling thanks to their exposure to consumer electronics. Indeed, revenues declined 15% in the quarter. However, this segment is predicted to experience a sequential uptick in Q3 thanks to the manufacturing ramp with some new handsets. The uptick is also partly due to a seasonal uptick in some products.

I’ve summarized the last quarter’s segmental growth along with company forecasts for the next quarter.

The story with Jabil Circuit, Inc. (NYSE:JBL) is one of a company coming through a difficult period with DMS predicted to grow again in Q4 and HVS & EIS getting to their targeted margins by the end of year.

Going back to what I argued earlier about margins, does this mean that earnings are set to improve and that the stock is a buy right now?

Where Next for Jabil Circuit?

Essentially your decision over buying the stock will rest on your cyclical view of the economy. The good news is that the stock is priced to give you good returns should some strength return to the consumer electronics market. Moreover, key contracts such as its Apple Inc. (NASDAQ:AAPL) work provide the company with upside potential.

One future concern with Jabil Circuit, Inc. (NYSE:JBL) lies with the hike in forecast capital expenditures from $500 to $700 million. This was described as broad based expenditure, but I read it as a response to weak end markets and an attempt to support growth in other areas. It’s not a great sign. In addition the stock has the risk of the Nypro acquisition being factored in, and then there is always the headline macro risk.

In conclusion I decided to take a pass, but for those looking for exposure to consumer electronics then Jabil Circuit, Inc. (NYSE:JBL) may well fit the bill.

The article A Buying Oppurtunity in This Consumer Electronics Play? originally appeared on Fool.com and is written by Lee Samaha.

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