Stifel Downgrades Jabil Circuit Following 'Strong Run

• Shares of Jabil Circuit, Inc. (NYSE: JBL) are up 30 percent since September 9 when they were hovering around $20.
• Stifel’s Matthew Sheerin downgraded the rating on the company from Buy to Hold.
• Exposure to Apple and the uncertain demand outlook for the core EMS segment may hinder Jabil Circuit’s performance in the near future, Sheerin stated.

Jabil Circuit is expected to report its 1Q earnings modestly ahead of the consensus estimates. The company is also likely to maintain its FY16 guidance of revenues and EPS of $20 billion and $2.60, respectively.

Analyst Mathew Sheerin expects Jabil Circuits to record overall top line growth of 11 percent in 2016. While the company’s Diversified Manufacturing Services segment is expected to grow by 20 percent, its core EMS business is likely to grow only 4 percent given weak demand in several end markets.

Sheerin believes management has played a key role in improving the company’s performance in the last two years by investing heavily and delivering sales and earnings growth that is above market trends.

He added, however, that significant exposure to Apple Inc. (NASDAQ: AAPL) and the uncertain demand outlook in the EMS segment could restrict the possibility of a significant valuation premium to the peer group.

Sheerin expects Jabil Circuit’s February quarter sales to decline 9 percent q/q mainly due to a seasonal slowdown from Apple-related programs. “We currently see fair value in the $26-$27 range, or less than 10% above our prior $25 PT,” the report noted.