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Sell Apple supplier Jabil on ‘downside risk’ to iPhone sales: Goldman

  • Goldman lowers its rating for Jabil shares to sell from neutral, predicting the Apple supplier will report earnings below expectations in fiscal 2019.
  • "We note that there could be downside risk to [Jabil] estimates if iPhone X orders are not stronger (or if the 8/8+ demand doesn't pick-up)," the firm's analyst writes.
An employee works on a circuit board at Jabil Circuit's facility in St. Petersburg, Florida.
Jim Stem | Bloomberg | Getty Images
An employee works on a circuit board at Jabil Circuit's facility in St. Petersburg, Florida.

A large Apple supplier is going to disappoint investors, according to a top Wall Street firm.

Goldman Sachs lowered its rating for Jabil shares to sell from neutral, predicting the Apple supplier will report earnings below expectations in fiscal 2019.

The firm is downgrading the shares "given what we view as overly optimistic Street expectations. The Street is assuming that Jabil's earnings grow double digits yoy for both of the next two years," analyst Mark Delaney wrote in a note to clients Tuesday. "We note that we are explicitly not making a negative call on iPhone sales … However, given what we view as relatively measured initial uptake of the iPhone 8/8+, we note that there could be downside risk to estimates if iPhone X orders are not stronger."

Jabil supplies Apple with the encasements used to house iPhones and iPads. Apple represented 24 percent of the company's sales during its fiscal 2017, according to the company.

Delaney lowered his Jabil shares price target to $26 from $30, representing 12 percent downside to Monday's close.

The analyst cited how the company posted an average annual earnings decline of 2 percent during the last four years.

"Jabil has a mixed track record at meeting its full year guidance," he wrote.

As a result, Delaney forecasts the company will generate fiscal 2019 earnings per share of $2.70 versus the Wall Street consensus of $2.91.

"We would look to be more positive on the stock if we had more confidence in the sustainability of Jabil's growth, and if customer diversification increased," he wrote.

Jabil shares are up 25 percent year to date through Monday versus the S&P 500's 14 percent gain.

The company did not immediately respond to a request for comment. Its shares declined 3 percent in Tuesday's premarket session.

— CNBC's Michael Bloom contributed to this story.