Stifel Downgrades Apple Following Weak iPhone Guidance, Lacking Near-Term Upside Catalysts

Shares of Apple Inc. AAPL could remain range bound between $105 and $120 over the next couple of quarters, until there are some visible upside catalysts, Stifel’s Aaron C. Rakers said in a report. He downgraded the rating on the company from Buy to Hold, while reducing the price target from $130 to $115.

Analyst Rakers said the downgrade reflected weaker-than-expected iPhone sell-thru and a lack of upside catalyst.

The Negatives

Rakers enumerated six areas of concern:

1. Apple guided to its FQ1 2017 revenue at $76-$78 billion, coupled with the projected of flat y/y iPhone ASP. This implies ~75-77 million iPhone ship expectations, versus the analyst’s prior estimate of 76.6 million.
2. At ~43 million, iPhone sell-thru is down 7 percent y/y and below Stifel’s expectation of 40-50 million.
3. Apple continues to face revenue declines in China, and reported a 30 percent y/y decline for FQ1 2017
4. “We believe we should take a cautious view on F2Q17 and F3Q17 expectations,” the analyst wrote.
5. Rakers believes investors would “take a tempered view” on Apple’s installed base upgrade rate for the iPhone
6. Apple guided to its FQ1 2017 gross margin at 38.0-38.5 percent, versus Stifel’s prior estimate of 39.5 percent.

“We were admittedly looking for a solid F4Q16 beat-and-raise; leading into clearer upside potential for F1Q17,” the analyst commented.