Jabil Inc. (JBL), a contract manufacturer, exceeded consensus sales and non-GAAP EPS expectations for fiscal 3Q22, observes Jim Kelleher, an analyst with Argus Research.

Despite lingering supply chain issues and COVID lockdowns in Shanghai and other Chinese cities, Jabil’s revenue grew more than $1 billion from the prior year on strong underlying demand. The company, which had been guiding for FY22 revenue of about $32.6 billion (and $31.8 billion before that), raised its top-line outlook to $32.8 billion.

Reflecting volume leverage and better overhead absorption, the company raised its core EPS outlook even more substantially, to $7.45 per diluted share from earlier guidance of $7.25 (and before that $6.55). At the new targets, revenue would be up 12% from FY21, while core (non-GAAP) EPS would be up 33%.

The company has built a diversified business with leadership positions in areas such as healthcare and packaging that provide higher-than-company average returns. The iPhone casing business from Apple (AAPL) continues to benefit from consumer enthusiasm about 5G and from Apple’s smartphone market-share gains.

Jabil has retained broad and profitable exposure to traditional technology hardware. The company appears to be emerging from the COVID-19 crisis with its core strengths not just intact but enhanced.

The coronavirus represents a major economic, social and health risk for all companies, nations and people — as governments, companies, and individuals are all responding aggressively to this threat. Jabil provides technology products that permit communication, both in groups and in isolation, and its long-term markets should survive this challenge.

The turbulence with top customer Apple underscores the current turbulence in the mobile device category, as well as the cost of the company’s heavy reliance on one customer. We believe this relationship remains strong, and we expect Apple to remain an important and profitable customer. However, Jabil also needs to accelerate efforts to diversify its revenue base.

We believe that Jabil has moved beyond past execution stumbles and is now positioned for multiple years of peer-leading top-line growth and margin expansion. The shares have retreated with the tech sector in 2022. With the company’s top- and bottom-line forecasts continuing to rise, the shares appear attractively valued. We are reiterating our "buy" rating and our 12-month target price of $76.

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