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Apple Faces Headwinds As Analyst Downgrades Stock Amid Concerns

KeyBanc Capital Markets shifts from bullish to neutral on Apple, citing high valuations and sales challenges

PORTLAND, Ore. — Apple Inc. (NASDAQ:AAPL) faced headwinds in the wake of rate concerns and an underwhelming hardware launch event in September.

Analyst Brandon Nispel from KeyBanc Capital Markets shifted from bullish to neutral, downgrading Apple’s stock from “Overweight” to “Sector Weight” and removing the previous price target of $200.

Apple CEO Tim Cook stands next to the new Apple Vision. Apple Inc. (NASDAQ:AAPL) faced headwinds in the wake of rate concerns. JUSTIN SULLIVAN/GETTY IMAGES.

The Apple Thesis: Nispel highlighted several factors driving this decision.

  1. Firstly, Apple’s stock traded at historically high multiples and a significant premium compared to its average valuation over the past decade. “We believe in order to justify upside to AAPL shares, peak valuations need to be applied or its growth profile needs to inflect higher,” he said.
  2. Secondly, KeyBanc’s First Look Data indicated challenges in Apple’s U.S. sales. The company was expected to report its fourth consecutive year-over-year revenue decline in the U.S. during the fiscal fourth quarter, with this weakness potentially continuing into the first quarter of fiscal year 2024. Nispel also noted softness in U.S. carriers, which account for 62% of the sales in the country.
  3. Thirdly, international growth might also face difficulties in meeting consensus targets for fiscal year 2024. Achieving accelerated growth across all international segments could be challenging, he said.
  4. Lastly, Nispel emphasized that current estimates appeared optimistic from both top-line and bottom-line perspectives. He projected slower revenue growth of 3.5% for fiscal year 2024 compared to the
Apple CEO Tim Cook stands next to the new Apple Vision. Apple Inc. (NASDAQ:AAPL) faced headwinds in the wake of rate concerns. JUSTIN SULLIVAN/GETTY IMAGES.

Consensus estimate of over 6%. Additionally, he expected margins to improve at a more modest pace due to various factors, including product introductions, mix shifts, and margin pressures.

“In our view, user growth is still more important than unit growth, but we believe this could be a losing argument near-term given lack of catalyst, which we believe results in a neutral risk/reward,” said Nispel.

“The international picture also doesn’t look so rosy, with market expectations for international growth potentially being aggressive. Besides, estimates on Wall Street—for both Apple’s top- and bottom-line—also appear full,” said the team at KeyBanc.

Price Action: Apple ended Tuesday’s session down 0.78% at $172.40, according to Zenger News Pro data.

It’s significant mulling over as tech stocks wallow under pressure. While Apple’s shareholders may be quick to write off current limitations as part of a broader trajectory—it’s easy to point a finger at the Federal Reserve as well as climbing Treasury yields—KeyBanc’s analysis is an eye-opener not to miss the forest for the trees.

© 2023 Zenger Zenger News does not provide investment advice. All rights reserved.

Produced in association with Benzinga

Edited by ISAAC OKOTH NYAMUNGU and Newsdesk Manager

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