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JBL reported F1Q20 earnings today (12/17/19) before the open, posting EPS of $1.05 vs. our estimate of $0.94 and raising F20 guidance by $0.15 to $3.60. The stock is up 7% intraday. EMS revenue beat of ~$570mn vs. our $3.85bn est was indicative of business momentum as opposed to low-calorie new customer wins; approximately half of the incremental $350mn from cloud was due to higher component costs. Today’s print helped JBL clear the hurdle of visibility in accelerating YoY earnings growth in F20; further we now model 6% YoY revenue growth in F20, above much of our coverage. However, given the recent runup, at current levels, we believe that the risk/reward skews evenly.
JBL reported an inline 4Q19 EPS yesterday (09/25/19), but stock traded up 5% on the updated outlook for F20 & F21. Management detailed a near term company even leaner (on the topline) and (margin) richer than we or the Street previously thought. It announced plans for another runoff of lower calorie business ($700mn in mobility) combined with an inward focus on driving efficiencies through IT and operations. At the same time, growth in F21 and beyond is clearly front-of-mind: mobility was alternatively identified as a material opportunity in a year’s time, while $250mn of F20 growth capex should invite questions around timing and scale of the return profile.
John Treadway has worked with large enterprises considering both private and public cloud implementations, first at Cloud Technology Partners, which was acquired by HPE, and now at Symphony Solutions, where he is CEO. Although hyperscaler revenue growth is moderating, he argues it is mostly due to tough comparisons as cloud approaches $70bn of revenue. He says AWS’s Andy Jassy might be right that only 3% of workloads are in the cloud by dollars.
In addition to tracking the five major tech sectors—Hardware, Semis, Software, Internet, and Services—we have added 2-3 subsectors for each for greater granularity. We show their performance in our weekly Wolfebytes.
AWS gains decelerated from 41% in 1Q to 37% in 2Q and Microsoft from 73% to 64%, still solid results that suggest workloads continue to move to public clouds and capex should improve in the second half. Google Cloud’s stated $2bn includes G Suite. We don’t have history from the company, but our estimates suggest a doubling YoY as Thomas Kurian begins to triple its salesforce. Full-year growth for the top four should be about 40%. We are hosting cloud consultant John Treadway Tues at 2pm.
Tech was strong last week during the first wave of earnings. The Wolfe Tech Universe rose 2.9%, outpacing the S&P 500’s 1.7%. Despite trade issues and weakening auto/industrial demand, Semi stocks jumped 5.4% and passed Software in three-month performance (Exhibit 1). Top stocks this week included Snap (+28%), AMS AG (+27%), Teradyne (+23%), Flex (+15%), and Twitter (+13%). Laggards were PTC (-17%), Computershare (-7%), LG Display (-6%), Citrix (-6%), and Atos (-5%).
With baseball season in full swing, let’s use the national pastime to discuss portfolio performance. The geeks not only own Silicon Valley but have taken over baseball. Sabermetrics, the application of statistical analysis to baseball, has contributed to the dominance of walks/strikeouts/home runs that plagues baseball today. The takeaway from Moneyball (especially the movie) was that on-base percentage is more important than batting average since a walk is almost as good as a single. More important, though, is slugging percentage, which gives more credit for a home run than a double or a walk. Batting average is quantity; slugging percentage is quality. All hits were not created equal.
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