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Why Apple Is Falling Again: Bank of America Cuts AAPL From Buy To Neutral, Lowers Price Target
Curious why after its massive drubbing yesterday, which led to the second highest volume day for AAPL stock in 2015, the phone market is down another 1.3% this morning? The reason: Wall Street's momentum chasing penguins have re-emerged, and moments ago Bank of America, right on time as in just after the stock broke its 200 DMA and entered a correction, decided to downgrade AAPL from Buy to Neutral, lowering its price target from $142 to $130.
The reasons for the downgrade from the report:
Long term winner but iPhone deceleration creates headwinds, move to Neutral
Deceleration in iPhones creates near term headwinds
We downgrade shares of Apple Inc. (ticker: AAPL) to Neutral from Buy with a PO of $130. Although the long term opportunity is significant, we expect near term pressure on shares driven by (1) significant slowdown in revenue growth as iPhone growth decelerates and other initiatives like Apple Watch, Apple Pay, Apple Music take time to ramp, (2) China now accounts for ~25% of iPhone sales (C2Q) and share gains will be more difficult to come by, (3) the stock price is correlated to gross profit dollar growth (Figure 6), which despite the mix benefit of the iPhone will decelerate significantly over the next few quarters, (4) the magnitude of the beats is diminishing creating higher risk to negative revisions particularly as the Apple watch expectations are likely too elevated in 2016 , (5) the iPhone 6S/6S+ are likely to be an incremental upgrade (force touch), but not likely compelling enough for driving a significant change in the pace of share gains, and (6) we do not see incremental capital return announcements beyond the already announced plans in the near term.
What about new products – Watch, Apple Pay, Music?
We model $0.30 EPS impact from Apple Watch in C2016 and $0.11 from Apple Pay. At its current ~10mn subscribers for Apple Music (not yet paying), the contribution will remain relatively small in C2016 at less than $0.10/share. Although the potential exists for each of these to become significant revenue drivers in the long-run, the short-to-medium term direction of the stock remains dependent on the iPhone.
Valuation always compelling; Momentum trumps near term
We do not dispute that valuation metrics remain compelling for Apple; however, in the last down-cycle despite compelling valuation the stock retraced 30%. AAPL stock has rallied 40% in C14 (vs. S15INFT up 18%), and is trading at multiples at a slight discount to peers.
Where could we be wrong?
PO moves to $130 Stronger than expected share gains of iPhones from Android, or increased enterprise penetration could drive upside relative to our model. Reacceleration in iPad sales could offset some of the iPhone decline, but with lower margins. Our new PO of $130 is based on 13x C2016 EPS of $9.99.
* * *
iPhones can continue to gain some share but expect some speed bumps
The iPhone remains a major driver of the company’s revenue (66% in F2015E) and operating profit (~85% in F2015E). While the iPhone 6/6 plus represents a super cycle, in our opinion, demand is being pulled in from the next year, and we see the December quarter of 2014 as the peak shipment quarter for iPhones until the potential iPhone 7 release in Sep 2016 (likely with force touch, dual rear cameras).
Importantly, China accounted for ~26% (est.) of total iPhone sales in the June quarter. On a
y/y basis this is significant growth; however, market share trends are easing after 3 quarters of gains. Given the upside in iPhone estimates largely depends on new users, we see incremental risk to units in the near term.
The iPhone sales over the past 3 quarters combined with the replacement rates (see above)
suggest that there was a significant acceleration of replacements driven by the iPhone 6/6+, which has since tailed off sharply, offset by very strong new user adoption. See our detailed analysis of this here: “A detailed look at the iPhone installed base”.
The stronger new user growth is bullish overall (installed base grows larger over time) but also makes the quarterly sales more volatile. We view this latter dynamic at significant risk given the headwind being created by the stronger dollar, and broader economic uncertainty which can lead to lower sales from large markets like China.
In short, fears over China's dramatic mood swing (where there has been nothing substantially new in the past 2 months and if BofA really cared it could have released this report back in late June when we said the Chinese market crash would impact AAPL sales and its stock price shortly), and concerns the momentum shift will become self-reinforcing, once again confirming that even for such a "fundamental" case as AAPL, only the abundance of greater fools matters.
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I think I must be the only person in the world that still uses a Samsung.
It cost me 96 cents at Sams.....I'm not real big on spending money.
When I spend big money....I typically buy physical gold.
Love my old Samsung Galaxy One tablet I bought used years ago.
Fuck AAPL for screwing me out of upgrading an iPad One I got used too.
Can't do shit with it now but can still upgrade everything on the old Samsung.
When the gvt becomes the greater fool, then there is NO greater fool.
So looks as if you can't fool all the people all the time, now can you Mr. Gvt?
Well, at least Amazon is still booming based on NEVER earning a profit. Apple, with great profits and a P/E of around 12 is plummeting.
Black is white. Up is down.
So my five year call before APPL death was likely correct. Good to know.
I still have Apple's headquarter competion date down in my diary as a potential hubris-top to watch.
The Silicon Valley's modern day 'Panopticon' isn't even close to being 'completed'. And you can bet that any sustained drop in Apple share price past 90 days will see construction on that project grind to a halt. That company could easily find itself in the wildnerness again, just as it was in the mid-late 90's. It only takes a series of bad decisions.
Sir Isaac Newton: The
Universal Law of Gravitation
And a Apple gave him the idea
Dumb calling a firm APPLE, as what goes up must come down
Under a long enough time frame an apple falls to ground ZERO!
Your logic explains why you're poor. And have to buy 96 cent phones.
Gold is not an investment. It's jewellery.
gold is a hedge, damn you.
Or maybe you think the dollar is going to gain purchasing power as a result of all the printing and debt and fuckery?
What?
Has BOA just blasphemed!
When will a downgrade happen before a stock takes a shit? Ahhh never
heh heh
Absolutely no upside in that crap.......I'm not doing it.
Remember 2008? Jim Cramer is still here.....nuff said.
If it bounced, they would have published the positve report instead.
I will not be surprised in the least if it bounces today.
DavidC
I bet they're going to downgrade WaMu also soon. BOA is really on the ball!
Can't piss off all your clients at once and survive.
Just the Headline grabbers once in a while.
BTMF! JUST BUY!
These days, truthful downgrades result in criminal investigations and charges by the Justice Department.
I bought me a nice LG when Radio Shack was going under, less than 20 bucks made me feel oh so good to save hundreds of dollars.
in Argentina an i shit runs close to $1500.
apple = brawndo
https://www.youtube.com/watch?v=7THG28GprSM
Meh, Cramer says buy, and when Cramer talks people listen. Hmmm, where have I heard that before?
And on that downgrade AAPL will no doubt have a big dead cat bounce and suck some more buyers in
Yes, we may see that. I told a friend holding APPL for years to set a stop loss. In fact, I told him 125, but he didn't take my advice. So if there's a bounce I'll tell him once more to sell, but I'll bet he doesn't (...because it can keep going up!). That's where the "suck some more buyers in" activates.
China is a huge market for Apple but now under threat due to China's stock market troubles, suspicions that US was short selling the market, and generally due to rising tensions between US and China
Apple IPhones Sales in China Outsell the U.S. for First TimeApril 27, 2015
http://www.bloomberg.com/news/articles/2015-04-27/apple-s-iphones-sales-...
But after losing $3 trillion in the markets, and with their wealth frozen, a hundred million Chinese no longer need an iPhone.
suspicions that US was short selling the market
Well yeah....but we're giving them cheap gold. What the hell are they bitching about?
also over $1000 in China.
What's that word? Gouging, isn't it? And while the iPhone is open for all to see on Chinese assembly lines, we have the Chinese engineers and capitalists saying "We can do as good or better for half the price". Nice work Apple. You gave them the tech AND the incentive to go around you.
imagine that - a US tech corporation affected by the broader economic etc. environment...
what a bunch of hacks!
being a book reader and such and luddite..why does apple want programs on my PC? I delete them when I find them..they just slow the pc down. I use unoffical software to run this pc, is that bad?
Since Steve has departed the world, Apple is now just another company. I think right now if he could come back, he's fire a few people for what they are putting out the door. Apple thinks their phones are so wonderful, it's just a matter of time before they sell everyone in China an iPhone, but that's simply not true. Apple is now being outsold by one of the Chinese companies, Xiaomi. So when I looked into it, I found this link, and it kind of blew me away. It seems that capitalism is alive and well in China after all, and the products and quality from several companies are pretty darned good! And the prices are also good:
http://www.phonearena.com/news/Best-Chinese-Android-smartphones-2014-edi...
Good luck Apple. (Note, link above says 2014, but opens to a 2015 article)
Looks like good old "industrial old age" for Apple.
"Hey I got a great idea. We can ship all our manufacturing to China and make a killing. We just need to do a tech transfer and............."
Sleep with dogs, wake up with fleas.
Of course, we all have fleas, but Apple seemed to walk around like it wasn't a flea ridden mutt.
pods
Apple is probably getting closer to market saturation than it appears and a touch of big flop-itus with the apple watch. The watch is hitting Best Buy later this month and may give it a brief bump but it looks like the watch was big mistake not to mention they got nothing new, just regurgitated products.
BlackBerry. Why do you think the gov uses them? Z10 works like a champ!
Unless you have an orphaned Z10 on T-Mobile, which I did. Recently switched to a carrier with the Z30, which is what the Z10 should have been in the first place. And the upgrade to BBOS10.3 means the app world of android is now officially open to BB users.
Fat fingered that one.
I told a friend of mine back in early July when AAPL had dipped to $120 or so to consider selling at least part of his stake or, if he was feeling frisky, hold on and hope it cracks $130 again and then dump.
As everyone here knows, it hit $130+ just a week later. He didn't sell because "it was going to $160." I said I appreciated his optimism, but if it fell back to $120, it was def time to bail.
Saw him again today. Of course he didn't listen. He then told me he picked up more yesterday, because it's still going to $160 (because the guy on NPR said so).
I don't claim to be an oracle of any sort (usually fading my action is sure bet), but some things are just too obvious.
NPR = chinese hair dresser.
NPR= Bi-racial gay shoe shine boy out of DC.
I think you think trading still works, but it is dead.
If it moves you can trade it.....if it's not working one way.....just go the other way.
Turn off the TV....that's usually a good first step.
so ... no more fAAPL for the wankstains who suck the worms out of this iShitter stock.
Apple down and Disney getting crushed. Yet DOW futures up?
aapl is down, dis is getting hammered but the fut's are flying. Ah, the casino
Hedge funds are dumping Apple because they have to. Put your crash helmets on folks.
penguins
Let's see, I should believe Apple or Squid Savings & Loan?
NO SO FAST NAA, HERE IN ASIA , APPLE HAS ALL THE JONY COME LATLEY , THE PREDENDING SOCIALCIMBER BRAINWASH TO BUY ONLY I FOOL PRODUCTS !
Poor Carl Icahn, has he gotten out already?
When apples are ripe, they tend to fall from the tree.
And look at that, right on cue from a downgrade by bankster of americrap AAPL is up over 2%!
I'm not sure about the watch, particularly at the price point...
http://www.theweek.co.uk/iphone-7/62138/iphone-7-13-new-features-for-bus...
But ultimately, the comparison is between phones and computers mainly.
the A9 processor is, I'll suggest, going to be a very good upgrade.
I'll leave it at that since I see the antifanboi sharks circling.
[sell my pretties, sell!!! drive her down to 105 for Daddy, will you?]
How about we do you one better and wait for $75?
Anyone remember the Walkman, the Razr, the iPhone??