UPDATE: Stifel Reiterates on Jabil Circuit as Demand Shifts Prompt Significant Guide-Down

In a report published Wednesday, Stifel analyst Matthew Sheerin reiterated a Buy rating on

, but lowered the price target from $26.00 to $24.00. In the report, Stifel noted, “We expected Jabil's November-quarter and Feb.-quarter to be ugly, driven by the phase-out of BlackBerry, and weak enterprise demand. What we did not see coming: 1) the divestiture of Jabil's repair-services business, which accounted for $1.1bn and roughly $80mn in EBIT; and 2) an expected 25% q/q decline in its core diversified manufacturing services segment (DMS) due to a ‘demand shift' at a major customer (we believe Apple). The very large drop in sales will result in significant negative leverage, leading to 2Q EBIT margin guidance of 1.5% at midpoint and EPS guide of $0.05-$0.15, vs. our $0.50 estimate. Although Jabil did not elaborate on the customer issue, we believe it stems from Jabil's casing-manufacturing business for Apple being skewed more toward the iPhone 5C than the 5S, for which demand reportedly has been much stronger. Jabil said it was retooling capacity in anticipation of another large program from the customer. In the meantime, Jabil will need to absorb its high costs as it also restructures operations to account for the BlackBerry exit. We can see why some investors would throw in the towel, given that it could take a few quarters for management to right the ship and regain credibility. But we also see the February quarter marking the bottom in sales and earnings, and expect slow and steady progress into FY15, when Jabil should be back to a $2.00 EPS run rate. We also note FCF is expected to be $400mn-$500mn in FY14 (a 11% yield), and the company authorized a $200mn share repurchase. We cut estimates and lower PT to $24 from $26 but maintain our Buy rating.” Jabil Circuit closed on Tuesday at $19.72.