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Analysts edgy ahead of Jabil&#039&#039s earnings report

Jabil Circuit's shares fell 10 percent as a downgrade and Cisco's troubles presaged bad news ahead of the company's second-quarter earnings report.

Shares in the electronic manufacturing services (EMS) company were off $2.11 to $21.39 Monday. They had already fallen after a disappointing first quarter. Jabil (NYSE: JBL) makes the printed circuit boards that are used in telecommunications products, computers and computer peripherals.

Analysts said that though the company should hit estimates in its upcoming second quarter, it may revise expectations downwards due to the worsening economy and Cisco's (Nasdaq: CSCO) troubles.

UBS Warburg analyst Scott Heritage cut the stock to "buy" from "strong buy" Monday, based on "potential further downward adjustments" to fiscal 2001 and 2002 earnings estimates when the company reports its second-quarter results during the week of March 19.

Heritage lowered estimates for fiscal 2001 and fiscal 2002 to 93 cents and $1.16 from $1.04 and $1.40, respectively.

Heritage said the generally weak market conditions are impacting Jabil's business, as evidenced by its layoffs announced last week at its manufacturing facilities in St. Petersburg, Fla.

Cisco's announcement Friday that it will lay off 7 percent to 11 percent of its workers is also bad news for Jabil. Cisco is the company's largest customer, making up 20 percent to 25 percent of total sales. Most of those sales had been for low- and mid-range routers; demand for those products has held up better than demand for other products at Cisco. But the news that weakness may be spreading at the networking-equipment giant puts that at risk.

For Jabil's second quarter, Heritage said the company should meet or fall slightly below First Call's expected earning of 20 cents a share. But he lowered his sales estimate to $1.13 billion, which is flat compared to last quarter. The analysts' previous revenue estimate was $1.16 billion.

Raymond James and Associates analyst Shawn Severson also trimmed estimates Monday, based on a "continuing deceleration in Jabil's customer base." He also cut his target price from $45 to $32 a share.

But Severson remained positive on the long-term outlook for the stock and its sector.

"We still believe the EMS industry (including Jabil) is one the best investment opportunities in this uncertain environment. Hence, we maintain our "buy" rating on Jabil's shares," he wrote.

Prudential Securities analyst Ellen Chae was also bullish about the stock's long-term prospects. She maintained her "strong buy" in a March 8 report, but lowered her revenue and earnings estimates for the second half of 2001.

Chae also lowered estimates for competitor Solectron (NYSE: SLR), which also reports next week. Its shares were off $1.67 to $24.62.

She, too, remained bullish on the EMS sector overall. "Despite weakness in end demand, we continue to be positive on the prospects for a number of the top tier EMS companies due to the strong trend toward outsourcing," Chae wrote. Her "favorites" continue to be Jabil, Flextronics (Nasdaq: FLEX), down $1.44 to $25.50, and Celestica (NYSE: CLS), down $1.39 to $42.56.