UPDATE: Nomura Securities Starts Apple (AAPL) at Neutral, $710 Price Target; "The Pie is Almost Baked"

October 9, 2012 7:07 AM EDT
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(Updated - October 9, 2012 8:35 AM EDT)

Nomura Securities initiates coverage on Apple (NASDAQ: AAPL) with a Neutral rating and $710 price target, saying the "pie is almost baked."

The firm said while there's upside to near-term estimates, growth looks set to slow to single digits from 2014.

On near-term dynamics, analyst Stuart Jeffrey said, "supply-side checks in Asia (end-September visits) in combination with our new demand-side model suggest Apple's iPhone sales could slightly beat recently lowered expectations for fiscal Q1." He said supply constraints suggest that demand for the iPhone and iPad mini is likely to spill over into Q2.

However, looking from 2014 and beyond the firm sees increasing challenges. "From 2014, developed market growth is seen slowing to single digits," the analyst said. "We expect emerging markets to drive growth thereafter; however, we expect this transition to undermine margins, due to a need for a lower-margin and potentially cannibalizing midrange offering, Android’s likely dominance in application availability, and a lower availability of subsidies." iPhone gross margins could contract by up to 10ppt, which is a driver for the firm's FY14 EPS estimate that is 12% below the consensus.

At 12.6x FY13E EPS, Apple is not aggressively valued, the firm notes. "However, as a company predominantly driven by mobile phones, an industry prone to volatility, we see little scope for upside given our single-digit earnings growth forecast beyond 2014."

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 $638.17 yesterday.

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