(Bloomberg) -- Expectations for a broad rebound across Apple Inc.’s businesses are unrealistic, according to KeyBanc Capital Markets.
Analyst Brandon Nispel downgraded the tech giant to underweight from sector weight, viewing assumptions that the company will record its highest growth in more than three years along with a major inflection across its business as “aggressive.” The broker has become bearish for the first time since initiating coverage three years ago.
“Apple is an impressive business with what we believe are unrealistic expectations to re-accelerate growth across all product categories and geographies,” Nispel wrote in a note published after markets closed on Thursday. Apple shares edged higher on Friday in New York, but the stock is still narrowly underperforming the Nasdaq 100 this year.
Among analysts tracked by Bloomberg, the stock now has 39 buy-equivalent recommendations, 18 holds and three sells. Nispel’s new established price target of $200 ranks among one of the lowest on the Street, and implies a 13% downside to Thursday’s close.
Earnings season is underway for the Magnificent Seven, with the blowout results of Tesla Inc. firing the starting gun. Apple will report on Oct. 31, with revenue from iPhone sales expected to see a rise in sales after two-straight quarterly drops. There are good signs about the performance of iPhone 16s, with sales up 20% in their first three weeks in China compared to the 2023 model, according to Counterpoint Research data.
While the market is expecting an acceleration in revenue growth for Apple next year across all product categories and geographies, Nispel is less enthusiastic. The analyst points to historical data, noting that Apple has only seen growth across all segments at the same time just once in the last 10 years, and twice in the past 20 years. From a geographical standpoint, the company has only grown all five of its regions three times in the last decade.
“While it is certainly possible Apple can achieve this feat, it is not probable, in our view,” Nispel said.
Bloomberg reported earlier this month that Apple is nearing production of an updated version of its iPhone SE, with the company hoping the overhaul will help it compete in the low-end smartphone market.
However, Nispel warns the revamp may not be net additive to sales of the iPhone 16, pointing to data from a recent consumer survey conducted by KeyBanc. While respondents had strong upgrade intentions for the iPhone 16, they also showed an interest in the iPhone SE.
“We think investors are overly optimistic on Unit assumptions given the view around iPhone SE being additive to sales, as our work suggests it’s more cannibalistic,” Nispel said. “With Apple trading at a large premium to history, vs. peers, and the broader market, we think the stock is likely to underperform and needs to significantly beat expectations to move higher, which we don’t expect.”
--With assistance from Subrat Patnaik.
(Updates to add Friday’s shares.)
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