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Tickers in this Article: JBL, FLEX, AAPL, RIMM
I've never been fond of Jabil (NYSE:JBL) as a long-term holding but, I did write back in September that I thought the stock might be priced to perform. And the stock was quite obliging in that regard, as it rose more than 50% over the next six months before taking another sharp downward turn. While I still have major reservations about owning these shares over a long stretch of time, the upcoming Apple (Nasdaq:AAPL) iPhone launch could offer some upside.

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Weakness in Third Quarter Results
Jabil's results for the third quarter is hardly a reason to get excited, at least not in a positive way. Revenue was barely up on an annual or sequential basis and was slightly below the average analysts estimate. The diversified manufacturing segment did well and was up 22%, but sales were down sharply in the high velocity segment ((due at least in part, I would think, to weakness at companies like Research In Motion (Nasdaq:RIMM), Nokia (NYSE:NOK) and Hewlett Packard (NYSE:HPQ)), and in Enterprise and Infrastructure as well.

Margins improved slightly, but slight improvements in razor-thin margins can be meaningful here. Gross margin improved about 20 basis points from last year, while operating income rose almost 3% as the company added about 10 basis points to its operating margin. On a non-GAAP "core" basis, operating income rose nearly 8%.

SEE: Zooming In On Net Operating Income

Guidance was Soft, but Could Have been Worse
Jabil's guidance was not that strong, and there seems to be a fair bit of macroeconomic uncertainty influencing management's views. That said, for a market that seemed to be steeling itself for bad news, the actual magnitude of the revision wasn't that bad.

It's almost certain that the company is seeing some headwinds from sluggish performance at customers like RIMM, HP and NetApp (Nasdaq:NTAP), and it's not as though Cisco (Nasdaq:CSCO) is blowing anybody away with its near-term revenue growth outlook either. Likewise, markets like solar and renewable energy are not healthy now at all.

SEE: Can Earnings Guidance Accurately Predict The Future?

Apple Today, Healthcare and Industry Tomorrow?
The company's growing relationship with Apple is a positive, particularly with the upcoming iPhone launch. Apple is big enough to matter to Jabil, but not necessarily big enough to really drive the bus.

Longer term, though, the company's market potential seems to be expanding. Hon Hai and Flextronics (Nasdaq:FLEX) are considerably bigger than Jabil in the electronics manufacturing services industry, but Jabil holds a solid market position in sub-categories like automotive, healthcare and industrial. Not only is there less cutthroat competition here, but these markets also offer considerably more growth than markets like computers or peripherals, as many of these companies are just warming to the possibilities of using outsourced manufacturing.

SEE: Competitive Advantage Counts

The Bottom Line
I've never been a huge fan of Jabil's business, and I don't think I ever will be. The company has shown that it can produce double-digit ROIC but, it's still a dog-eat-dog business with perilously thin margins, significant capex needs and little control over demand.

All of that said, value is value. If Jabil can deliver on the potential in markets like healthcare and produce mid-to-high single-digit free cash flow growth, these shares are too cheap today. Jabil may be a classic case of a stock that is bought to be sold, but today looks more like a "buy" time than a sell time.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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