Longbow Downgrades Apple, Newest iPhone Cycle Is Merely 'Good, Not Great'

Apple Inc. AAPL will likely become one of Wall Street's most debated stocks in 2018 and one analyst is no longer taking the bull side of the debate.

The Analyst

Longbow Research's Shawn Harrison downgraded Apple's stock from Buy to Neutral with no assigned price target.

The Thesis

The Street is expecting Apple's newest iPhone cycle to be great but so far it's merely "good," Harrison said in a note. Specifically, conversations and checks with the analyst's contacts saw a double-digit year-over-year growth in iPhone production in the fourth quarter of 2017, but has since slowed down to a 2 to 4 percent growth in the first quarter of 2018. Harrison said the contacts are suggesting Apple will see a high-single digit iPhone growth rate in the first half of 2018 which is short of the Street's consensus estimate, which calls for an at least 10 percent growth rate.

The analyst is now modeling Apple to deliver 233 million iPhone units throughout the full fiscal 2018, which represents a 7.5 percent growth. This marks a decrease from a prior estimate of 248 million units shipped, which represents a 14.5 percent growth. The revised figures now falls short of the Street's 11 percent growth rate or 240 million units shipped over the same time period.

"Given our change in estimated iPhone growth profile near term, we anticipate this dynamic will limit upside stock appreciation," Harrison said.

Price Action

Shares of Apple were trading higher by around 0.3 percent at $175.69 Wednesday.

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