This Tech Stock Looks Set to Explode in 2021

Apple (NASDAQ:AAPL) supplier Jabil (NYSE:JBL) has gotten off to a tentative start in 2021. Shares of the contract electronics manufacturer have failed to match the incredible rise of the Nasdaq-100 Technology Sector index in the early weeks of the year.

However, this slow start presents an opportunity for savvy investors to start building their long positions in Jabil stock, as it has the potential to zoom higher in the coming months. A mix of favorable business conditions in the contract electronics manufacturing space and the switch to a higher-margin business model are going to be tailwinds for this tech stock.

Let’s take a closer look at these catalysts.

JBL Chart

JBL data by YCharts

Meet Jabil’s growth drivers

The global electronic manufacturing services (EMS) market is expected to clock a compound annual growth rate (CAGR) of 10% through 2027, according to a third-party estimate. This space has historically benefited from a spurt in sales of computer hardware and communications devices, which account for 59% of the overall EMS market as per Beroe, a provider of procurement intelligence data.

These markets have switched into a higher gear of late. IDC estimates that smartphone shipments increased 4.3% in the fourth quarter of 2020. Shipments are expected to jump 11.4% in 2021 as the 5G smartphone market gains momentum. Jabil is in a nice position to take advantage of this trend.

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Apple, for instance, is one of Jabil’s largest customers, with 22% of the total revenue. The smartphone giant has hit a purple patch with the iPhone 12, with demand being so strong that Apple is reportedly raising supply substantially. AppleInsider reports that Cowen has upgraded the iPhone 12 build forecast to 55 million units for the March quarter, a jump of 49% from the prior-year period. The firm was earlier expecting Apple to make 51 million units.

Hand drawing upward arrow stock chart

Image source: Getty Images.

Jabil’s fiscal 2021 second-quarter earnings report is still a few weeks away, but it won’t be surprising to see the company exceed Wall Street’s estimates thanks to Apple. What’s more, Apple is likely to remain a catalyst for Jabil for the remainder of the year, as its sales are expected to jump significantly over 2020.

Additionally, Jabil is experiencing strong growth in the cloud computing business. The company pointed out on the last earnings conference call that the “mobility connected devices and cloud businesses experienced unexpected high levels of demand in Q1.”

The cloud business could continue driving Jabil’s revenue higher in the long run. That’s because the global cloud manufacturing market is expected to expand at a CAGR of 15.7% through 2026, according to a third-party report. And then, there are additional catalysts such as the automotive business that’s expected to step on the gas this fiscal year. This segment is projected to record 23.5% revenue growth to $2.1 billion.

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These catalysts have helped Jabil increase its fiscal 2021 revenue forecast to $27.5 billion from its original forecast of $26.5 billion. More importantly, Jabil is also on track to register strong earnings growth thanks to a change in the model of the cloud business.

Big earnings boost is in the cards

Jabil expects its core operating margin of 4.1% this fiscal year, while core earnings are expected to jump to $4.60 per share. These estimates are an improvement over the company’s original fiscal 2021 expectations of 4% in core operating margin and $4.00 in core earnings per share, which was issued in September last year.

For comparison, Jabil’s core earnings stood at $2.90 per share in fiscal 2020, which means that its bottom line is on track to increase nearly 59% this year. What’s more, analysts expect Jabil to clock double-digit percentage earnings growth over the long run. That’s why, now would be a good time for investors looking for a potential growth stock to buy, as Jabil trades at less than 10 times forward earnings, and it may not be available at this valuation if its numbers keep getting better.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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View more information: https://www.fool.com/investing/2021/02/24/this-tech-stock-looks-set-to-explode-in-2021/

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