Apple is being downgraded by JMP Securities this morning from “market outperform to market perform.”The reason for the downgrade? “A notable deceleration in its primary manufacturing partner Hon Hai.” Hon Hai sales growth is decelerating, suggesting Apple’s business could follow.
(Hon Hai is the parent of Foxconn, Apple’s notorious manufacturer.)
JMP thinks iPhone sales could just be in line with expectations this year. It also sees iPad sales eating into Mac sales.
Apple’s track record is to smash expectations, so if it delivers earnings that are in line, or just above estimates it could be negatively perceived affecting the stock, moving towards $300.
Most (all?) analysts on Wall Street think Apple is buy, so this is an interesting take.
Here’s the full note from JMP’s morning round up in analyst-ese:
We are reducing estimates and downgrading Apple from Market Outperform to Market Perform to reflect risk associated with the notable deceleration in its primary manufacturing partner Hon Hai (Foxconn) that was emerging even prior to the amplified uncertainty created by developments in Japan. Hon Hai sales growth decelerated from 84% y/y in the month of December to 37% in January and then again to 26% in February, or levels that are tracking well below the >70% y/y sales growth consensus is looking for in the March quarter and >50% in June. Consequently we are trimming our F2Q11 revenues estimates from $23B to $22B (Street $23.1B; guidance $22B) and GAAP EPS from $5.49 to $5.10 (Street $5.27, guidance $4.90) and CY12 GAAP EPS estimate from $27.50 to $27.00 (Street $27.63). We don’t know the source of the Hon Hai deceleration, but iPhone sales appear to be tracking simply in line for the March quarter, there has been widespread weakness in computing as tablet demand has grown, and there is product transition risk around the iPad 2. While we see Apple’s five-year track record of upside surprises (averaging 23%) and YTD outperformance (AAPL +7.1% vs S&P 500 +1.9%) as exposing the stock to near-term downside risk towards its $300 200d MA, longer term we see current valuation levels at ~13x our CY12 GAAP EPS estimate of $27.00 as appropriate relative to our low-teens coverage universe mean.
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