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BGC Cuts Apple To $85: 'The Muse That Drove Apple Has Gone Somewhere Else'

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BGC Cuts Apple To $85: 'The Muse That Drove Apple Has Gone Somewhere Else'
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Here's an interesting Haiku courtesy of Colin Gillis if BGC: "It has become clear, that the muse that drove Apple Inc. (NASDAQ: AAPL), has gone somewhere else."

In other words, Gillis downgraded Apple's stock to Sell from Hold with a price target slashed to $85 from a previous $110 as Apple's stock is drifting away in the "peak Tim Cook" reality.

According to Gillis, "peak Tim Cook" occurred on February 23, 2015, when Apple's stock hit a record high valuation of $775 billion. Since then, $235 billion in value has eroded and Apple only bought back $117 billion worth of its stock. In fact, management repurchased its own stock at a higher average price than where the stock is trading at today for the past six months.

Related Link: June Smartphone Survey Shows Apple's iPhone 7 Might Perform Like iPhone 6

Meanwhile, Apple's domestic cash balance has been "depleted" to $24 billion, its oversees cash hasn't been deployed and the company's debt load now stands at $72 billion.

"And now my muse has left me, for the charms of another," the analyst wrote.

Why The Downgrade

Gillis offered seven reasons to support his downgrade:

  • 1. Ongoing risk that the upcoming iPhone release will see a slower upgrade rate cycle compared to the prior release, the iPhone 6s.
  • 2. "Unease" surrounding management's positioning of the business for new revenue streams.
  • 3. There is a possibility that consensus estimates for the September and December ending quarters could be revised lower.
  • 4. Apple's view that the smartphone market will return to material growth is questionable.
  • 5. Apple continues to lag or has no presence in many hot categories, including streaming video, automotive and virtual reality.
  • 6. Apple's software products are "lackluster."
  • 7. As previously mentioned, Apple's business peaked under Cook's leadership.

Bottom line, Gillis questioned what exactly is going on at Apple's HQ. Specifically, why wasn't it Apple that acquired ARM Holdings plc (ADR) (NASDAQ: ARMH) with its $200 billion in overseas cash? After all, ARM is a high margin business with future growth and positions Apple to be a leader in the Internet of Things (IoT) category.

"So disappointing!" the analyst concluded. "Perhaps management was focused on how to remove headphone jacks."

Full ratings data available on Benzinga Pro.

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DateFirmActionFromTo
Jan 2017GuggenheimInitiates Coverage OnBuy
Dec 2016PiperJaffrayAssumesOverweightOverweight
Oct 2016Goldman SachsMaintainsBuy

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