What You Need To Know
Jabil Inc. (NYSE: JBL), a prominent player in contract electronics manufacturing, has recently made significant strides, reflected in its financial performance and market position. Independent research provider CFRA upgraded Jabil's stock to 'Buy' from 'Hold,' setting a 12-month target of $151, based on an optimistic outlook for the company's involvement in healthcare, electric vehicles, and renewable energy sectors.
Despite a reduction in its FY 24 earnings per share (EPS) forecast, CFRA expects a recovery in the second half of 2024, particularly in semiconductor capital equipment sales.
Jabil recently rejoined the S&P 500 index after seven years, ranking around the 400th-largest with a $15.2 billion market cap. This move should increase JBL stock visibility and demand from index funds.
Moving from the S&P MidCap 400 to the S&P 500 is a significant milestone for JBL, signaling its evolution from a mid-sized to a larger corporation.
Ultimately, Jabil stock's long-term performance hinges on its business outcomes. Inclusion in the index doesn't directly influence Jabil's operations but reflects its financial recovery and past achievements.
Furthermore, Jabil's inclusion in the S&P 500 index underscores its diversified business model's resilience amid economic uncertainties.
The company also announced a $2.5 billion share repurchase program for FY 24, signaling strong future prospects. Analysts at Stifel also raised Jabil's price target, indicating a consensus of positive expectations among market experts.
Jabil's first quarter results for fiscal year 2024 show a robust performance. Despite a broad-based softening in demand, the company achieved growth in core margins and EPS. The report detailed a net revenue of $8.4 billion and significant gains in operating income. For the fiscal second quarter, Jabil forecasts revenue between $7.0 and $7.6 billion and an EPS in the range of $1.73 to $2.13, indicating a steady operational trajectory.
Under CEO Mark Mondello and successor Kenny Wilson, Jabil has seen significant financial improvements, showing resilience amidst global challenges. With robust revenue, earnings, and free cash flow growth, Jabil's financial future looks promising.
JBL stock's recent market performance, including its upcoming inclusion in the S&P 500 and positive revisions from financial analysts, reflects a strong position in the industry. Its focus on growth sectors and a substantial share repurchase program further highlight its resilience and promising future in a fluctuating economic landscape.
Its return to the S&P 500 not only highlights its recovery but also makes it an attractive investment, offering diverse and reliable growth potential, especially appealing to investors seeking options beyond the typical tech sector.
Why This Is Important for Retail Investors
Enhanced Stock Visibility and Credibility: Jabil's inclusion in the S&P 500 index increases its visibility among investors, lending additional credibility to the stock. This recognition often leads to greater interest from retail investors, who might view Jabil as a more secure and validated investment opportunity.
Positive Analyst Forecasts and Upgrades: The upgrade to a 'Buy' status by CFRA, along with raised price targets by analysts like Stifel, signals confidence in Jabil's financial prospects. Such positive assessments from reputable sources can guide retail investors in making informed decisions, as these forecasts often reflect a company's expected performance and market potential.
Diversification into Growth Sectors: Jabil's involvement in expanding industries like healthcare, electric vehicles, and renewable energy positions it well for future growth. Retail investors often seek companies with a diversified portfolio, as it can reduce risk and increase potential for long-term gains.
Strong Financial Performance and Future Projections: Jabil's robust financial results, including growth in core margins and EPS, along with promising forecasts for future quarters, indicate a stable and potentially lucrative investment. Retail investors can find reassurance in a company that demonstrates consistent financial health, especially in uncertain economic times.
Share Repurchase Program: The announcement of a substantial share repurchase program for FY 24 implies that Jabil is confident in its future performance. Such initiatives often increase earnings per share and can be seen as a sign of a company's strong financial position, making it an attractive option for investors looking for reliable investment opportunities.
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How Can You Use This Information?
Here are some of the investing ideas that can be explored using this information:
Jabil's involvement in healthcare, electric vehicles, and renewable energy sectors positions it in high-growth industries, appealing to growth-oriented investors. The company's robust performance in core margins and EPS, along with its positive future revenue and EPS forecasts, aligns with the criteria for growth investing.
Growth investing focuses on stocks of companies expected to grow at an above-average rate compared to other stocks in the market; learn more in our article titled 'What is Growth Investing?'.
CFRA's upgrade to 'Buy' and a target of $151, along with similar positive sentiment from other analysts, could create momentum in Jabil's stock price. The inclusion in a major index often generates investor interest and can create a momentum play, especially with increased visibility and demand from index funds.
Momentum investing rides the wave of existing market trends by buying assets that have shown an upward price trend and selling those in a downtrend.
While Jabil may not be a traditional dividend play, the stability and growth prospects could appeal to investors looking for companies with the potential for future dividend payouts.
Dividend investing targets companies that regularly distribute a portion of their earnings to shareholders as dividends.
Why was JBL stock previously removed from the S&P500?
Jabil was removed from the S&P 500 index seven years ago primarily due to changes in its market capitalization, which is a common reason for companies being added to or removed from major stock indices.
In 2014, Jabil Circuit (now known as Jabil Inc.) was removed from the S&P 500 list of large-cap stocks because its market capitalization decreased, making it no longer representative of the large-cap market segment that the S&P 500 index aims to capture. The company's market cap at that time was estimated at $3.9 billion.
Jabil was replaced by Level 3 Communications Inc., which had a higher market capitalization of $10.8 billion. This change was part of the routine adjustments made by S&P Dow Jones Indices to ensure that the S&P 500 index accurately reflects the market composition based on company size and other factors. The move to replace JBL stock with Level 3 Communications was aligned with the acquisition of TW Telecom by Level 3, which further influenced the market cap and relevance of these companies within the index.
The S&P 500 index, managed by S&P Dow Jones Indices, routinely adjusts its components based on criteria like market cap, liquidity, and industry representation. When a company's market cap falls below a certain threshold relative to other companies in the index, it may be replaced by another company with a higher market cap.
In Jabil's case, its removal likely reflected a shift in its market cap, making it no longer representative of the top 500 companies by market cap at that time. This is a standard process reflecting ongoing changes in the business landscape and financial markets.
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Some investors prefer to invest in stocks via an exchange-traded fund for ease and reduced risk. Some popular ETFs include the following:
Large-Caps: Vanguard Mega Cap ETF (MGC)
Mid-Caps: Vanguard Mid-Cap ETF (VO)
Small-Caps: Vanguard Small-Cap ETF (VB)
Growth: iShares Core S&P U.S. Growth ETF (IUSG)
Value: iShares Core S&P US Value ETF (IUSV)