Bank Of America Cites Near-Term Concerns In Apple Downgrade

Bank of America's bullish case for Apple Inc. AAPL has come to a pause after the company's fiscal fourth-quarter earnings report highlights four "troublesome" near-term trends.

The Analyst

Bank of America's Wamsi Mohan downgraded Apple from Buy to Neutral with a price target lowered from $235 to $220.

The Thesis

Apple's earnings report signals four potential tailwinds that warrants a departure from a bullish stance on the stock, Mohan said in a note. These include:

• Expectations for slower growth in the Services business in fiscal 2019 as evident by recent data which point to a slowdown today.
• Management's December-ending quarter implies 73 million iPhone units will be shipped, notably short of the 78 million consensus estimate.
• Management's disclosure of scaling back its unit guidance for iPhones, iPads and Macs will be interpreted by investors as a negative.
• Emerging market concerns and unfavorable currency fluctuations, especially in India, Brazil, Russia and Turkey, makes it more expensive for certain global customers to buy iPhones.

Mohan said these concerns are likely near term in nature and signals a down-cycle for Apple. While the last down-cycle brought the stock down by 30 percent, a more reasonable outlook would be the stock's multiple compressing by one to two points.

The firm's revised $220 price target is based on 15 times calendar year 2019 estimated EPS of $14.23 versus a prior price target multiple of 16 times.

Price Action

Shares of Apple were trading lower by more than 6 percent to $207.80 early Friday morning.

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