Apple (AAPL) Gross Margin Concerns Keeps One Analyst Sidelined

Wells Fargo reiterated a Market Perform rating on Apple (NASDAQ: AAPL) with a price target of $505-$575. Analyst Maynard Um continues to have concerns about a balance of power shift back to operators from handset vendors.

"Following our downgrade on January 2, 2014, we have been asked whether Apple has become a purely product-cyclical story. While history might suggest that each “s” cycle and the resulting gross margin expansion would lend itself to a more positive story for Apple, what complicates the product-cyclical story, in our opinion, aside from the extremely limited visibility at this point in time, is our view of the potential balance-of-power shift between the operators and the handset vendors. That stated, we do believe there is a secular story to Apple, but one that we expect will play out beyond the next 2-3 years. This report details what we believe will, or should, be the evolution of Apple into more of a secular story," said Um.

"We maintain our Market Perform rating for three reasons: (1) gross margin concern into the iPhone 6, i.e., every recent iPhone cycle following an “s” model has seen gross margin pressures, due to new components, limited initial scale, lower yields, etc.; (2) limited market-cap opportunities in the markets in which it currently plays (including TV and watch); and (3) signs of the balance of power shifting back to operators from handset vendors," he added.

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 $523.48 yesterday.

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