Stifel Downgrades Apple (AAPL) to Hold on Weak iPhone Sell-Thru, Lack of Upside Catalyst

October 26, 2016 6:13 AM EDT
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Price: $112.22 +1.07%

Rating Summary:
    60 Buy, 10 Hold, 5 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 20 | Down: 18 | New: 18
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Stifel downgraded Apple (NASDAQ: AAPL) from Buy to Hold with a price target of $115.00 (from $130.00) following Q4 results, citing weaker iPhone sell-thru and lack of upside catalyst.

Analyst Aaron C. Rakers commented, "We are downgrading to a Hold as we believe shares of Apple could remain range bound ($105-$120/sh.; 6-7x EV/EBITDA on C2018 estimates vs. 5-10x NTM historical 5-yr range) over the next 2-3 quarters until we / investors are able to garner greater insight into potential fundamental upside drivers. We move our target price to $115, or 7x EV/EBITDA. We were admittedly looking for a solid F4Q16 beat-and-raise; leading into clearer upside potential for F1Q17."

What they Don’t Like:

1.) Apple’s F1Q17 revenue guide of $76-$78B, coupled with an anticipated flat y/y iPhone ASP ($/unit) leaves us to consider an implied ~75-77M iPhone ship expectations vs. our prior 76.6M estimate. At ~76M iPhones and in using a similar 1/14th contribution from the extra week in F1Q17 (i.e., similar to noted 14th week contribution in Dec ‘11) we believe investors could question a ~71-72M like-to-like iPhone ship (-4% at midpoint).

2.) iPhone Sell-Thru -7% Y/Y. Apple’s F4Q16 iPhone sell-thru of ~43M (-7% y/y) was below our high-40/50M expectation.

3.) Ongoing Declines in China: Apple’s Greater China revenue declined 30% y/y in F1Q17; -17% y/y in F2016.

4.) Potential Pocket of Weakness into March / June Quarters: We believe we should take a cautious view on F2Q17 and F3Q17 expectations; F2Q17 follows 14-week F1Q17.

5.) Ongoing Tempered Investor Expectations on Installed Base Upgrade Rate: We believe investors will / should take a tempered view on Apple’s installed base upgrade rate for the iPhone, 6.) F1Q17 GM% Guide Below Expectations: Apple guided F1Q17 GM% at 38.0%-38.5% vs. our prior 39.5% estimate (street: 40.1%).

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $118.25 yesterday.



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