This Apple supplier generates bigger profits than Apple


Apple‘s (NASDAQ: AAPL) The stock has rallied about 50% over the past 12 months, buoyed by robust demand for the iPhone 12 – its first family of 5G devices – and the continued expansion of its service ecosystem. That rising tide also boosted the stocks of Apple suppliers, but many of them still had lower returns than the iPhone maker.

One notable exception was that Jabil (NYSE: JBL), which makes Apple’s iPhone and iPad cases. Jabil’s stock has rebounded roughly 75% in the past 12 months as business weathered the pandemic and generated accelerated sales and earnings growth. That rally continued after the company released its latest third quarter report, which slightly exceeded analysts’ expectations and included a rosy forecast for the fourth quarter.

Image source: Apple.

Let’s take a closer look at Jabil at how much it depends on Apple and whether the stock still has room to run.

What is Jabil doing?

Jabil offers manufacturing services to a wide variety of industries. The EMS (Electronic Manufacturing Services) unit, which generated half of its sales in the last quarter, offers services for the capital goods, cloud, networks, defense, industry, energy, retail and smart home markets.

The top customer in the EMS segment is Amazon (NASDAQ: AMZN), which accounted for 11% of its sales in fiscal 2020 (which ended last August). Amazon accounted for less than 10% of Jabil’s sales in 2018 and 2019.

In 2018, Jabil began making smart packaging and devices for Amazon’s DRS (Dash Replenishment Service) platform, which enables smart devices to automatically order new consumables. In 2019, the company joined Amazon’s Packaging Support and Supplier Network, which enables it to provide certified packaging design and manufacturing services to Amazon’s suppliers, sellers, and manufacturers.

Jabil’s Diversified Manufacturing Services (DMS) unit, which generates the remaining half of sales, primarily provides engineering solutions for the materials science, technology and healthcare sectors. The segment also serves the automotive and transport markets, which were taken over from the EMS segment at the end of the 2020 financial year.

The main customer of the DMS segment is Apple, which accounted for 20% of sales in fiscal 2020, compared to 28% in 2018 and 22% in 2019.

Jabil’s other notable clients include Cisco, PS, Johnson & Johnson, Ericsson, and Tesla. Last year the company generated 47% of its sales with its five largest customers.

How fast is Jabil growing?

Jabil’s sales growth compared to the previous year accelerated in the last two quarters as the EMS unit stabilized and the DMS unit continued to achieve strong double-digit growth.

Sales growth (YY)

3rd quarter 2020

4th quarter 2020

Q1 2021

2nd quarter 2021

3rd quarter 2021



















Data source: Jabil.

The Jabil EMS unit grew slower than the DMS unit for two reasons. First, the industrial, energy and retail customers of the EMS unit were more exposed to pandemic disruptions. The automotive sector, which suffered from disruption during the pandemic, also pulled the EMS unit down until it was relocated to the DMS unit in the fourth quarter.

These weaknesses partially offset the strength of its cloud-centric services, which benefited from the stay-at-home trends during the pandemic, as well as increasing demand for edge computing devices that reduce the physical distance between internet users and servers.

Second, the DMS unit serves healthcare customers who suffered fewer disruptions during the crisis. The increasing demand for new 5G phones from Apple and its mobile competitors complemented this growth. These strengths offset the weakness in the automotive and transportation segments, which gradually stabilized as the pandemic progressed.

Jabil expects fourth quarter revenue to grow about 4% year over year, beating previous analysts’ expectations, and to grow 8% for the full year.

Profitability and ratings

Bottom line, Jabil’s core growth in non-GAAP earnings accelerated significantly over the past year – even as it struggled with COVID-19 costs.


3rd quarter 2020

4th quarter 2020

Q1 2021

2nd quarter 2021

3rd quarter 2021

Core EPS Growth (YY)






Data source: Jabil. Non-GAAP. YOY = year after year.

It attributed this acceleration to tighter cost controls, with an emphasis on “reliable” operating margins in its slower growing EMS business and “expanding” operating margins in its higher-growth DMS business.

Jabil expects its core non-GAAP EPS to grow roughly 38% year over year in the fourth quarter, also beating analyst estimates, and a 90% increase in EPS for the full year.

Analysts expect Jabil’s sales and earnings to rise 4% and 7% respectively over the next year – although those estimates are likely to be raised after the company slightly exceeded Wall Street’s bar in the last quarter.

Based on that outlook, Jabil stock still looks cheap at 10x future earnings. By comparison, Apple is trading at 25 times future earnings.

Should you buy Jabil instead of Apple?

Jabil is not necessarily a better long-term investment than Apple as its business is highly cyclical and more affected by macroeconomic headwinds. His business also has more moving parts to keep track of than Apple’s.

However, if you are looking for a reliable contract manufacturer who will benefit from the growth of both Apple and Amazon, you should take a closer look at Jabil. It still looks undervalued and could outperform Apple and many of its other players in the supply chain later this year.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.


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