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KeyBanc's Rare Apple Downgrade Sparks Growth Concerns Amid iPhone Sales Optimism

Word on the StreetFriday, Oct 25, 2024 11:00 am ET

1min read

KeyBanc Capital Markets has expressed skepticism about Apple's (AAPL.US) potential for a comprehensive rebound across all business lines. Analyst Brandon Nispel downgraded Apple's stock from sector weight to underweight, citing unrealistic growth assumptions. This marks the first bearish stance from the firm on Apple in three years.

Nispel's report, released post-market on Thursday, highlighted Apple's impressive stature but questioned the feasibility of accelerated growth across all product categories and regions. The stock experienced a 0.3% pre-market drop following the report.

Among analysts tracked, 39 recommend buying, 18 suggest holding, while only 3 advise selling Apple's stock. Nispel's new price target of $200 is among the lowest on Wall Street, implying a 13% drop from Thursday's closing price.

The third-quarter earnings reports are approaching, with Apple set to release its figures on October 31. Hopes are pinned on iPhone sales rebounding after two quarters of decline. Counterpoint Research indicates a 20% increase in iPhone 16 sales in China compared to last year's model, showing promising signs.

Market expectations lean towards revenue acceleration across all product categories and regions for Apple next year. However, Nispel remains cautious, pointing to historical data showing Apple achieving simultaneous growth across all domains only once in the past decade, and just twice in the last 20 years. Geographically, growth in all five regions has occurred merely three times in the past ten years.

Although potential exists for Apple to achieve this challenging feat, Nispel views it as improbable. Reports also suggest Apple is preparing an updated iPhone SE model to strengthen its position in the low-end smartphone market.

Nevertheless, Nispel highlights that recent consumer surveys by KeyBanc indicate minimal net increase in iPhone 16 sales due to this update. While there's strong interest in upgrading to the iPhone 16, similar interest exists for the iPhone SE.

"Investor assumptions about iPhone SE sales seem overly optimistic," Nispel remarked. "Our research suggests the iPhone SE may cannibalize sales. Given Apple's stock premium compared to historical levels, peers, and the market overall, we suspect the stock might underperform unless it significantly exceeds expectations, which we doubt will happen."

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