We think that Jabil Inc. currently is a better pick compared to Seagate Technology. Jabil stock trades at about 0.3x trailing revenues, much lower than the 1.8x for Seagate, while Jabil’s P/EBIT stands at just 12x, slightly lower than Seagate’s 13x. Does this gap in the companies’ valuations make sense? We don’t think so. While both the companies have benefited in the pandemic, with an overall increase in demand for hardware technology, Jabil posted a stronger performance for its most recent fiscal year (FY 2020), with revenue rising from $25.3 billion in FY ’19 to $27.3 billion in FY ’20. Seagate, on the other hand, saw revenue rise from $10.5 billion in FY ’20 to $10.7 billion in FY ’21 (Seagate’s fiscal year ends in June). Additionally, Jabil saw EPS drop from $1.85 in FY ’19 to $0.36 in FY ’20. However, on an LTM basis, Jabil’s EPS stands at a strong $2.45. On the other hand, Seagate’s EPS rose from $3.83 in FY ’20 to $5.45 in FY ’21, but still stands a lot lower than the $7.13 in FY ’19.

Further, there is more to the comparison, which makes Jabil a better bet than Seagate at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating income and operating margin growth. Our dashboard Jabil vs Seagate: Industry Peers; Which Stock Is A Better Bet? has more details on this. Parts of the analysis are summarized below.

1. Jabil Is The Clear Winner On Revenue Growth

Jabil trumps Seagate in revenue growth. Jabil’s revenue rose from $19 billion in FY 2017 to $28.3 billion on an LTM basis. On the other hand, Seagate’s revenues have dropped from $11.2 billion in FY 2018 to $10.7 billion on an LTM basis. Seagate has struggled due to dwindling demand for hardware memory products, and the company is aggressively making a shift to cloud and data center storage. Jabil on the other hand, has seen consistent revenue growth since FY 2017, with revenue rising steadily every year.

Additionally Jabil is a larger company, with more than 2.5x the revenue of Seagate, combined with stronger revenue growth over the last three years, making it a better bet.

2. Both companies have seen inconsistent earnings growth

Seagate’s EPS had risen from $4.10 in FY 2018 to $7.13 in FY 2019, before dropping to $3.83 in FY 2020, and finally rising to $5.43 in FY 2021. Similarly, Jabil’s EPS dropped from $0.71 in 2017 to $0.50 in FY ’18. Jabil’s EPS then surged to $1.85 in FY 2019, before falling to $0.36 in FY 2020. However, the company’s EPS has since recovered over the past two quarters, with LTM EPS rising to $2.45.

The Net of It All

With Jabil’s revenues standing higher than that of Seagate, and the company’s earnings growth better than Seagate’s on an LTM basis, we believe Jabil is in a better position than Seagate. Even looking at the post-Covid recovery, Jabil has fared far better than Seagate, with LTM revenues 4% higher than the Covid fiscal year (FY 2020), while Seagate’s LTM revenues stand only around 2% higher than those in FY 2020. While Seagate has a slightly higher P/EBIT ratio of 12.7x vs Jabil’s 11.9x, and a significantly higher P/S ratio at 1.8x vs Jabil’s 0.3x, Jabil has the potential to close the P/S valuation gap, supported by strong financials. As such, we believe that Jabil is currently a better buying opportunity compared to Seagate stock.

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