Contract manufacturers rise on Jabil upgrade

2 min read

Jabil Circuit (NYSE: JBL) jumped 8 percent Friday after a Credit Suisse First Boston analyst upgraded the stock and said the outlook for equipment manufacturers wasn't as dire as yesterday's drops assumed.

Shares were up 3.81 to 35.06. The company predicted strong growth ahead in its fourth quarter report.

Analyst Herve Francois upgraded Jabil to "strong buy" from "buy" yet lowered his 12-month target price to $52 from $70, to reflect the changing valuation in technology.

Yesterday Jabil's shares were down 28 percent along with other electronic manufacturing services companies, following the news that Gateway would miss consensus estimates.

"We believe the impact of (Gateway) on Jabil's sales is greatly exaggerated," Francois said.

Gateway's sales accounted for 5 percent of Jabil's fiscal 2000 revenues and was targeted at 2 to 2.5 percent in fisal 2001, Francois said. Given acquisition opportunities Jabil is actively exploring, the rate could fall even further, Francois added.

He also noted that companies continue to increase their outsourcing and asset divestiture, which makes Jabil well-positioned to make acquisitions that immediately add to earnings.

Bear Stearns also reiterated a "buy" rating on Jabil and some of its contract manufacturing peers: Solectron (NYSE: SLR), up 2.06 to 30.06; Flextronics (Nasdaq: FLEX), up 4.5 to 29.56, Celestica (NYSE: CLS), up 4.06 to 56.19 and SCI Systems (NYSE: SCI), up 4.81 to 31.63.

"We think its important to underscore (that) daily disappointments in tech hardware have not curtailed our optimism for EMS companies which were grossly oversold yesterday," analyst Thomas A. Hopkins stated in a report.

"Our expectations for 44 percent year over year 2001 earnings growth for the group remains unchanged and could even rise," he added.