Market Overview

Time For Apple's Stock To Enter A 'Period Of Digestion,' Guggenheim Says

Share:
Time For Apple's Stock To Enter A 'Period Of Digestion,' Guggenheim Says

The bullish case for Apple Inc. (NASDAQ: AAPL) was based expectations for weak iPhone growth to be more than compensated by a jump in iPhone average selling prices. But that story has now passed and the stock is entering a "period of digestion."

The Analyst

Guggenheim Partners' Robert Cihra downgraded Apple from Buy to Neutral with no assigned price target (prior price target of $245).

The Thesis

Apple recorded its best ever iPhone revenue growth in three years in fiscal 2018, but that was in some part due to a "big jump" in iPhone ASP of 17 percent, Cihra said in a note. While favorable at the time, the bullish story of "growth via ASPs" will start to anniversary. Over the past decade, Apple's iPhone ASP is up 40 percent, or $220 per unit -- with half of the growth occurring in fiscal 2018.

Investors may be right in pointing out the $1,099+ new iPhone XS Max will help lift ASP but replacement cycles have already expanded from two years to three years, the analyst said. As such, investors may have to wait until 2020 for Apple's next "genuine" upgrade cycle to start in conjunction with the launch of 5G.

Despite strong growth in the Services business Apple's reputation of being a "product company" remains unchanged. Specifically, when Apple launched the iPhone Upgrade Program three years ago, it should have evolved into selling Apple's entire product and services portfolio to loyal users but this change hasn't been implemented yet.

Apple's large size implies it likely needs to enter even bigger markets to support strong growth. Cihra said "we remain convinced" Apple is developing an electric and self-driving car which contributed to total R&D dollars tripling over the past five years and more than doubling as a percentage of revenue from 2.6 percent in fiscal 2013 to 5.4 percent in fiscal 2018.

Price Action

Shares of Apple closed Tuesday at $192.23.

Loup Ventures managing partner and former Piper Jaffray analyst Gene Munster will be a guest on Benzinga's PreMarket Prep trading show Thursday morning. He'll be on for 30 minutes to talk iPhones, Teslas and any other questions you have! Click here to join the chat.

Related Links:

Apple Shares Dip After Rosenblatt Downgrade

Analysts Break Down Key Issues From Apple's Q4 Print

Latest Ratings for AAPL

DateFirmActionFromTo
Aug 2019Initiates Coverage OnEqual-Weight
Jul 2019MaintainsHold
Jul 2019MaintainsBuy

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Apple Car Guggenheim Partners iPhone iPhone ASPAnalyst Color Downgrades Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (AAPL)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
IQDowngrades
IQDowngrades21.0
COTYMaintains9.0
FNMaintains60.0
NNNMaintains57.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Cowen: Kohl's, Target, Tiffany Are Top Holiday Retail Picks

The Daily Biotech Pulse: Mallinckrodt Faces FDA Panel, Reshape's Earnings, Vapotherm To Debut