Wells Fargo Thinks Apple (AAPL) Shares will be 'Range Bound'; Analyst Cuts Rating to 'Market Perform'
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(Updated - September 8, 2016 7:36 AM EDT)
Wells Fargo downgraded Apple (NASDAQ: AAPL) from Outperform to Market Perform and lowered its price target to $105-$120 (from $115-$125) following the company's iPhone 7 & 7 Plus unveiling yesterday. Analyst Maynard Um said positives are "largely known" and he thinks shares will be range bound given recent gains and balanced risk/reward. While the iPhone 8 has potential to be a big cycle, he thinks it's to early to invest.
Um explained, "Our prior thesis was predicated on reasonable visibility to Dec qtr iPhone sell-in/gross margin given the extra week and, hence, low risk of an earnings/guidance miss. However, with calendar year end in sight, sell-through, rather than sell-in, in our opinion, becomes more important and, given limited visibility and with shares up 12% since earnings on 7/26 (S&P up 1%), we see risk/reward as balanced."
The analyst added, "We also believe expectations for 1) Street raising Dec qtr ests, 2) an up y/y Mar qtr (Mar last year impacted by excess inventory), and 3) stable gross margins in this cycle are now largely anticipated by investors. We make slight adjustments to our F17 EPS to $9.28 from $9.44 as we see some potential average selling price (ASP) risk from a shift to mid-tier from changes in storage capacities."
Um concluded, "... see limited upside potential beyond the high end of our revised range given investor expectations for the raise, narrow visibility into Mar/Jun qtrs (dependent on Dec sell-through) and potential for pull-in of demand from future quarters due to more aggressive country launch plans. While iPhone 8 has the potential to be a big cycle, we believe there is limited visibility given the off cycle and, if history is an indicator, believe it too early to be investable."
Shares of Apple closed at $108.36 yesterday.
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