Apple Downgraded By Bank Of America On iPhone 'Headwinds'

In a report published Wednesday, Bank of America Merrill Lynch analysts downgraded the rating on Apple Inc. AAPL from Buy to Neutral, with a price target of $130. Although the company appears to have significant long-term opportunities, the analysts expect the shares to witness near-term pressure.

According to Bank of America, Apple's stock could see some near-term pressure due to a meaningful slowdown in revenue growth, driven by deceleration in iPhone growth, along with the time required for other initiatives, such as Apply Music, Apply Pay and Apple Watch, to ramp.

In addition, although China now accounts for close to 25 percent of iPhone sales, as of CQ2, the analyst expects market share gains to become increasingly difficult to achieve going forward.

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"[T]he stock price is correlated to gross profit dollar growth, which despite the mix benefit of the iPhone will decelerate significantly over the next few quarters," the analysts stated, while adding that "the magnitude of the beats is diminishing creating higher risk to negative revisions."

Moreover, while the iPhone 6S and 6S+ are expected to be incremental upgrades, the analysts believe that they are unlikely to be compelling enough to lead to any meaning change in the pace of market share gains.

Also, with incremental capital return unlikely to be announced in the near term, beyond that which already has been announced, the share could be under pressure in the near term.

With regard to Apple's new products, such as Apply Pay and Apple Music, the analysts expect their contribution to the earnings remain relatively small in C2016. "Although the potential exists for each of these to become significant revenue drivers in the long-run, the short-to-medium term direction of the stock remains dependent of the iPhone," the analyst added.