Oppenheimer Analyst Rejects AAPL Downgrade Reasoning

Oppenheimer analyst Yair Reiner has come to Apple’s defense, rejecting arguments from a competing analyst, Alex Gauna of JMP Securities, who downgraded AAPL on Wednesday. Mr. Gauna downgraded Apple based on his analysis of Apple manufacturer Hon Hai Precision Industry Co., but Mr. Reiner thinks that equating a slowdown at Hon Hai to Apple’s own business isn’t exactly…precise.

JMP’s Mr. Gauna downgraded AAPL from “Market Outperform” to “Market Perform,” and the centerpiece of his analysis was a slowdown in growth as reported by Apple manufacturer Hon Hai Precision Industry, which assembles many of Apple’s products in factories operated under the Foxconn name.

He also expressed concern over Apple’s supply chain, which has some components produced in Japan, but the primary reason he cited as Hon Hai’s growth decreasing from 84% in December to 37% in January to 24% in February.

We pointed out in our coverage of Mr. Gauna’s research note that Apple isn’t Hon Hai’s only client. The manufacturing giant is just that, a giant, and the company employees hundreds of thousands of workers that make products for a large number of companies throughout the world. Indeed, Apple isn’t even the Foxconn subsidiary’s only customer.

Longtime Apple bull Yair Reiner of Oppenheimer echoed that argument in a research note covered by The Wall Street Journal. Mr. Reiner said equating a slowdown at Hon Hai to a slow down of Apple’s own business might be attractive in some ways, but rejected the simplistic analysis of Mr. Gauna.

“This note of caution might appear to be supported by the high correlation between Hon Hai and Apple’s revenue momentum over the prior year,” Mr. Reiner wrote. “The two companies have accelerated together; should they not now decelerate together? The theory has an immediate appeal, but according to our analysis, it’s not supported by a closer look at the numbers, because Apple’s contribution to Hon Hai is limited.”

He concluded that. “The correlation between Apple and Hon Hai’s revenue therefore appears to be a product of coincidence more than causality.”

Earlier on Thursday we covered another AAPL bull, Kulbinder Garcha of Credit Suisse, who initiated coverage of Apple with an “Outperform” rating and a US$500 price target.

Shares in Apple regained some of the territory lost Wednesday, ending the day at $334.64, up $4.63 (+1.40%), on strong volume of 23.5 million shares trading hands.

AAPL Chart

Source: Yahoo! Finance

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.