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Analyst Drops Apple (AAPL) From the Tree; Here’s Why


Apple (AAPL) no longer has the support of Guggenheim analyst Robert Cihra. Cihra downgrades the stock from Buy to Neutral and removed his previous $245 price target altogether. (To watch Cihra’s track record, click here)

The analyst argues that though it is evident iPhones are of growing value to customers, a 40% increase in the price from the last batch of iPhones was just too much too soon. Cihra says since the jump in price was sprung on all in one year, we will now be heading into a “period of digestion” where customers will not want to spend the money again.

Cihra cuts the FY19E revenue and EPS estimates to $273 billion (plus 3% year-over-year) and $12.97 (plus 9% year-over-year) from $281 billion dollars and $13.41 respectively.

“Following early supply-chain cuts, exemplified by Corning’s softer Q4E Gorilla Glass guide back in Oct, and now 3D sensing laser supplier Lumentum (LITE) and LCD supplier Japan Display (6740-TKS) both warning just this week, we now estimate iPhone units -5%Y/Y in FY19E vs. flat Y/Y in FY18, BUT unlike last year do NOT see ASP increases providing enough offset, with our forecast that blended iPhone ASPs increase only +3%Y/Y, leaving iPhone revenues -2%Y/Y. Moreover, we see growing risk of even softer iPhone unit demand, with downside in China, India and other emerging markets, where Apple may need to start considering lower price points,” Cihra said.

The analyst suggests AAPL’s new XS Max model does contribute to ASP, remarking the Plus-sized X was not a hot commodity last year. He believes the new 6.1-inch XR model can help mix lower-end buyers up to the $749 starting price, but with the XR starting weaker than expected, it will be tough because neither new model is good enough to get customers to spend the money on the upgrade. Cihra worries new iPhones from here on out with not have a high enough demand or purchasing power.

“With replacement cycles having already elongated from 2 years to 3 years, we think it may not be until 5G launches that the next genuine upgrade cycle can start again, but with that not likely until CY20E,” Cihra asserted.

Looking ahead, the analyst expects FY19E to have 21% year-over-year growth driven by Apple Watch, AirPods and Homepods. Cihra foresees AR/MR glasses could become popular if combined with the cellular Watch + AirPods, which would bring Apple to a new level. Nevertheless, Cihra sees those devices as only contributing 8% to total company revenue.

Overall, Apple has had 21 bullish analysts in its corner over the last three months, 13 analysts playing it safe on the sidelines, and one who sees a bearish scenario at play. Importantly, the 12-month average price target of $238 showcases 27% in upside potential for the stock. (See AAPL’s price targets and analyst ratings on TipRanks)