Shares of Jabil Inc. JBL have risen 11.8% since it announced a definitive agreement with China-based BYD Electronic (International) Company Limited to divest its Mobility business to focus more on core businesses. The stock traded at $115.42 as of Sep 1, 2023. The deal announced on Aug 28, 2023, is valued at about $2.2 billion and is likely to be the largest of its kind by the company if concluded, subject to the mandatory regulatory approvals and fulfillment of other customary closing conditions.
The divestment will enable Jabil to enhance its financial flexibility to reward its shareholders with risk-adjusted returns in the form of incremental share repurchases. In addition, it will facilitate the company to invest more in electric vehicles (EVs), renewable energy, healthcare, AI cloud data centers and other end markets to strengthen its position as one of the largest global suppliers of electronic manufacturing services. These factors probably appeased investors and contributed to the uptrend in the stock.
The soon-to-be-divested business primarily manufactures printed circuit boards and related products in Chengdu and Wuxi in China. The deal will likely expand BYD Electronic's customer base and augment its smartphone components business, which has been its leading revenue-generating unit. It is also expected to help BYD Electronic penetrate new markets and add value to its mobile supply chain. The transaction is, therefore, a win-win deal for both firms.
The uptick in Jabil’s shares is further buoyed by a solid momentum in industrial business driven by growth in clean and smart energy infrastructure adoption. Strength in solar inverters, smart meters, energy storage & power and building management solutions are driving the top line. The company has an established global presence and a worldwide connected factory network, which enables it to scale up production per the evolving market dynamics.
Management’s focus on improving working capital management and integrating sophisticated AI and ML capabilities to enhance the efficiency of its internal process are major tailwinds. The company is witnessing a resilient demand trend and anticipates substantial secular growth in EVs, healthcare, renewable energy infrastructure, 5G and cloud. Its automotive industry is poised to benefit as the transformation to EV accelerates.
With more than 250,000 employees across 100 locations in 30 countries, Jabil is likely to benefit from secular growth drivers with strong margin and cash flow dynamics. Moreover, solid end-market experience, proven technical and design capabilities, manufacturing know-how, supply chain insights and global product management expertise have put it in good stead. An extensive global footprint is further strengthened by a centralized procurement process, which, coupled with a single Enterprise Resource Planning system, aids customers with end-to-end supply chain visibility.
The stock has gained 99.7% in the past year compared with the industry’s growth of 66.9%.
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We remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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AudioCodes Ltd. AUDC is a Zacks Rank #2 stock. It has a long-term earnings growth expectation of 4.3% and delivered an earnings surprise of 2.2%, on average, in the trailing four quarters.
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