Apple Downgraded Ahead Of, But Not Because Of, Upcoming Earnings
In a note to investors this morning, Barclays analyst Mark Moskowitz downgraded Apple (AAPL) to Equal Weight as he does not expect "meaningful upside potential" to consensus estimates for 2017, limiting the stock's relative outperformance potential.
LACK OF UPSIDE POTENTIAL: Barclays' Moskowitz downgraded Apple to Equal Weight from Overweight this morning, and lowered his price target on the shares to $117 from $119. While he noted that this call was not on the quarter, the analyst told investors he does not expect "meaningful upside potential" to consensus estimates for Apple's 2017 fiscal year, limiting the stock's relative outperformance potential. The iPhone 8 cycle is likely not to bring a rebound in growth, while China and India are likely not to emerge as growth catalysts in the next 12 months, Moskowitz argued. Furthermore, the analyst pointed out that he is lowering his Barclays Global Smartphone market forecast. Nonetheless, Moskowitz said he believes long-term growth opportunities related to India, services, the enterprise, artificial intelligence, and maybe even the Cloud still exist, but does not expect these potential opportunities to emerge as "major needle movers" over the next 12 months for Apple. The iPhone maker's "sticky ecosystem" and large cash balance, however, provide "decent downside support" for longer term investors, he contended.
'SOLID' RESULTS: Less bearish, UBS analyst Steven Milunovich reiterated a Buy rating on Apple's shares this morning, saying the company's December quarter results should be "solid" as his survey finds a mix shift to the Plus and greater storage will likely bolster average iPhone selling prices. In a note of his own, the analyst told investors that Apple's revenues should be just above the Street's estimates and at the upper end of the company's guidance range. Nonetheless, Milunovich noted that he looks for China to be down again this year, and expects the company's March quarter gross margin guide to be down year over year due to currency and increased bill of materials costs. His peer at Baird voiced a similar opinion, expecting "solid" first quarter results. While William Power acknowledged "moderate risk" to the March and June quarters, he pointed out that he views Apple shares as attractive in advance of the iPhone 8 cycle. Moreover, the iPhone maker should be a prime beneficiary of a potential tax repatriation holiday and lower tax rates, he argued, adding that he remains positive on the company's overall positioning and opportunity. Power reiterated his Outperform rating and $133 price target on Apple shares.
WHAT'S NOTABLE: On Friday, news emerged that Apple had filed suit against Qualcomm (QCOM) over "unreasonable" licensing terms. In response, Qualcomm general counsel Don Rosenberg stated that "Apple's claims are baseless", alleging that the iPhone maker has "intentionally mischaracterized our agreements and negotiations, as well as the enormity and value of the technology we have invented, contributed and shared with all mobile device makers through our licensing program." This lawsuit follows a recent anticompetitive charge made against the chipmaker by the Federal Trade Commission.
EARNINGS DATE: Apple has scheduled a conference call to discuss earnings for the December-end quarter, which it considers its first quarter of the fiscal year, to be held on January 31 after the market close.
PRICE ACTION: In morning trading, Apple is fractionally lower at $120 per share.
Disclosure: None.
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