Citi Reiterates Sell On Jabil Following Guidance Cut

Jabil Circuit, Inc. JBL has significantly lowered its full-year sales and EPS guidance for the second successive quarter.

Citi’s Jim Suva maintains a Sell rating on the company, with a price target of $17.

Guidance Cut

Suva mentioned that Jabil Circuit had cut its FY16 EPS guidance from the original $2.60 to $1.85, representing a reduction of 29 percent from the beginning of the year.

The revision was driven by the company’s DMS segment, which includes production of smartphone casings.

Suva expressed concern regarding “increased competition in the Apple Inc. AAPL supply chain where competitor Catcher is adding capacity and is qualified to supply Apple and Casetek is currently trying to become qualified.”

Beyond 2016

The analyst expressed uncertainty regarding the new 2017 iPhone model having a metal or glass casing, which had the potential to increase the risk to Jabil Circuit’s earnings ability.

The company guided to a 5 percent quarter-on-quarter growth, but a 20 percent year-on-year decline for the August quarter for the DMS segment. Suva pointed out that this decline was more severe than the consensus forecasts for Apple iPhone for the June and September quarters.

The analyst attributed this to “Apple working down channel inventory ahead of the iPhone 7 launch expected in September.”