Apple’s shares closed at 1.4 percent lower for Tuesday’s trading — ending the day at $553.13.
The reason in a nutshell: that Wells Fargo changed its rating for Apple from “outperform” to “market perform”. While this downgrade wasn’t accompanied by a change in valuation (which remains in the $536 to $581 range) the rating essentially shifts recommendation away from “buy” to “neutral” (which actually means “sell”).
Why does Wells Fargo think this? According to analyst Maynard Um:
Our bullish thesis on Apple had been predicated on the expectation for gross margin (GM) expansion driven by the 5s cycle. While we still have conviction in the gross margin thesis (and the potential for iPad/iPhone unit upside), we believe this may be largely embedded into the valuation.
The main concerns regard the gross margin during the iPhone 6 cycle, market opportunity and wireless providers — which have been offering subsidies for smartphones.
On gross margins, Um noted that,
Gross margins have decreased by an average of 225 basis points (bps) in the period following the launch of new form factor iPhones while increasing ~225bps in the two quarters following an “s” launch. With the secular story, in our opinion, largely over, we believe the stock may be more susceptible to trend with margins.
Um also suggested that Apple’s market cap gains haven’t come from increased consumer spending, but rather from wresting customers away from competitor companies. As market share comes closer to saturation, Apple’s growth may slow.
Finally Um comments that,
Wireless operators have been offering generous subsidies of ~$400 per smartphone, getting the price to consumers to ~$250 in an effort to drive increased smartphone penetration.
With a certain percentage of shareholders always a bit tetchy, it is little wonder that some would view Wells Fargo’s analysis as a jumping-off point.
Still, as Forbes points out, Apple stock will most likely remain around the $555 mark until earnings are officially announced.
- Source Street Insider