Wells Fargo Downgrades Apple

In a report published Thursday, Wells Fargo analyst Maynard Um downgraded

from Outperform to Market Perform, maintaining $536-581 valuation range. “Our bullish thesis on Apple had been predicated on the expectation for gross margin (GM) expansion driven by the 5s cycle,” the report said. “While we still have conviction in the gross margin thesis (and the potential for iPad/iPhone unit upside), we believe this may be largely embedded into the valuation.” According to the report, the valuation range is roughly based on 12-13x the analyst's FY2014 EPS estimate. Key upside risks are innovative and compelling new products, better than expected gross margins and aggressive capital allocation. “We believe the positives of potential near-term "s" cycle gross margin improvements and new products are balanced against potential gross margin pressure later in the year, limited amount of incremental market cap opportunity in the existing product segments, and a potential balance of power shift back to wireless operators from handset vendors,” the report said. Some highlights from the report included: -Holiday sales appeared to be strong for Apple. -Leverage swing back to operators may be coming. -Gross margins have decreased. AAPL closed Tuesday at $561.02 with shares trading up 1.17%.