Almost all of Wall Street is bullish on Apple Inc. (Nasdaq: AAPL), with buy/outperform ratings outnumbering sell/underperform ratings by a ratio of 32 to 1. Nomura analyst Jeffrey Kvaal may not be among the rare Apple bears, but he has left the ranks of the Apple bulls by downgrading the stock to “neutral” on Tuesday.
According to Kvaal, the iPhone X supercycle rally is running out of steam, and there are not enough bullish catalysts on the horizon to justify further upside for the stock.
Apple stock has rallied 51 percent in 2017, more than twice the return of the overall U.S. market. The stock’s forward price-earnings multiple stands at about 15, which Kvaal says is in line with its previous supercycle valuation peaks of 13 following the iPhone 5 and 15 following the iPhone 6. Following the previous two iPhone supercycles, Apple’s earnings multiple eventually contracted back to between 8 and 9.
Kvaal says Apple investors should expect the same scenario to play out once again. “We believe unit growth, if not quite [average sale price] growth, is well anticipated by consensus and a historically full multiple,” Kvaal says.
In addition, he says Apple’s services revenue growth will not be enough to pick up the slack. “While its user base and services growth are powerful tailwinds, neither is yet sufficient to flout the trend of 30 to 40 percent intracycle downticks,” he says.
Kvaal says potential earnings tailwinds from tax cuts and a repatriation holiday may already be priced into Apple stock following its big 2017 rally.
Nomura has reduced its fiscal 2018 iPhone unit sales forecast from 265 million to 245 million, roughly in line with consensus forecasts of 242 million. In addition, the firm has reduced its 2018 earnings per share estimate from $11.75 to $11.50.
Despite the downgrade, Kvaal says Apple remains a “reasonable investment” for shareholders who intend to hold the stock for an extended period of time and can afford to ignore the impact of individual iPhone cycles. He says…
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