Apple Supply Chain Stock Is Too Cheap To Ignore

As cash tills round the world are ringing in the launch of the new iPhone 5 it’s not just Apple who are set to benefit from the sales. Estimates suggested that 5 million iPhone 5’s were sold in the first three days of sale but it’s the parts and supply chain and the companies in that might prove the more interesting business story in the long run.

US firm Jabil Circuit is a supply chain management and electronic manufacturing partner. Their parts are in many household items and they work in a wide variety of sectors such as automotive, aerospace, defense, healthcare, industrial, technology, and more. Jabil is not just a manufacturer but also works in product design services, quality control, supply chain management, distribution, and logistics to many other companies around the world. Jabil work on parts and supply with Apple.

In the markets recently, Jabil Circuit’s price has been akin to a range of hills with prices hitting both lows of $18.50 in July, the highs of $24 in August and then back down to $19 recently. This recent low came in the light of company financial results which some market analysis and investors saw as disappointing. In the light of the ongoing financial slump globally this could be understood at first glance but a closer look might suggest something different.

Many are now suggesting that the drop in price looks like a buying opportunity as Jabil Circuit’s link to the new iPhone 5 has come up. A recent Barron’s article has linked a short-term revenue mission to the new phone’s launch. Jabil themselves suggested the last quarter results were affected by ‘a challenging new program ramp in our specialized services sector,’ which commentators linked to iPhone 5 build.

In August 2012, Jabil Circuit reported their GAAP operating income as $144 million, or 39 cents per share. When you take out variables,stock-based compensation, and distressed or unpaid customer charges then operating income was instead closer to $175 million which is 54 cents per share. Jabil’s board has also authorised the repurchase of $100 million worth of shares of the company’s common stock during the next 12 months.

A closer look at Jabil Circuit’s data also gives room for optimism.

  • Current Share Price: $18.90
  • 52-Week Range: $16.62 to $27.40
  • Dividend: 32 cents per share, which yields 1.5%
  • 2012 Earnings Estimate: $2.77 per share
  • 2013 Earnings Estimate: $3.16 per share
  • P/E Ratio: about six times earnings

(Data is sourced from Yahoo Finance).

Although Jabil Circuit’s current position has caused some people to ask questions it is a good bet that their share price may begin to rise as their relationship with Apple continues. Unlike users of Apple’s map software, there is a clear sense that Jabil is a company who knows where they’re going.

Supply Chain Financing from Procserve.