Contract manufacturer Jabil will lower its exposure to major customer Apple and operations in China with the planned sale of its mobility unit. Jabil stock jumped Monday on the news.
St. Petersburg, Fla.-based Jabil late Sunday announced a preliminary agreement to sell its mobility unit to China-based BYD Electronic for $2.2 billion.
"If completed, the proceeds from this transaction will enable us to enhance our shareholder-centric capital framework, including incremental share buybacks," Chief Executive Kenny Wilson said in a news release.
"Additionally, it will provide opportunities for further investment in electric vehicles, renewable energy, health care, AI cloud data centers, and other end markets," he said.
Jabil Stock Is In A Flat Base
On the stock market today, Jabil stock surged 8.9% to close at 12.37.
Jabil stock has formed a flat base with a buy point of 115.25, according to IBD MarketSmith charts.
JPMorgan analyst Samik Chatterjee reiterated his overweight, or buy, rating on Jabil stock on Monday.
"The sale of the Mobility business represents strategically lowering exposure to cyclical end markets, including smartphones," Chatterjee said in a note to clients. It also will lower "concentration risks for the company," namely exposure to Apple.
Exiting A Slow-Growth Business
In recent years, Jabil has been diversifying its operations to move away from its reliance on Apple. The company makes metal frames for iPhones and other Apple devices.
"While Jabil historically has been perceived as an 'Apple'-centric business, Jabil's reliance on Apple has steadily declined from 28% of revenue in fiscal 2018 to just 19% in fiscal 2022," UBS analyst David Vogt said in a note to clients.
Selling the mobility unit will allow Jabil to focus on faster-growing markets, Vogt said. He rates Jabil stock as neutral.
JPMorgan's Chatterjee said the deal also will lower Jabil's exposure to China.
"The sale of the business will entail sale of Jabil's China manufacturing plants, likely lowering the geopolitical risks ascribed by long-term investors to the manufacturing footprint," Chatterjee said.
Meanwhile, Jabil stock is on IBD's Tech Leaders list.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
