Apple's Growth Engine Sputtering? Bullish Analyst Lists 4 Factors Behind Stock Downgrade

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Apple Inc. (NASDAQ: AAPL) faced headwinds in the wake of rate concerns and an underwhelming hardware launch event in September.

Analyst Brandon Nispel from KeyBanc Capital Markets shifted from bullish to neutral, downgrading Apple's stock from "Overweight" to "Sector Weight" and removing the previous price target of $200.

The Apple Thesis: Nispel highlighted several factors driving this decision.

  1. Firstly, Apple's stock traded at historically high multiples and a significant premium compared to its average valuation over the past decade. "We believe in order to justify upside to AAPL shares, peak valuations need to be applied or its growth profile needs to inflect higher," he said.
  2. Secondly, KeyBanc's First Look Data indicated challenges in Apple's U.S. sales. The company was expected to report its fourth consecutive year-over-year revenue decline in the U.S. during the fiscal fourth quarter, with this weakness potentially continuing into the first quarter of fiscal year 2024. Nispel also noted softness in U.S. carriers, which account for 62% of the sales in the country.
  3. Thirdly, international growth might also face difficulties in meeting consensus targets for fiscal year 2024. Achieving accelerated growth across all international segments could be challenging, he said.
  4. Lastly, Nispel emphasized that current estimates appeared optimistic from both top-line and bottom-line perspectives. He projected slower revenue growth of 3.5% for fiscal year 2024 compared to the consensus estimate of over 6%. Additionally, he expected margins to improve at a more modest pace due to various factors, including product introductions, mix shifts, and margin pressures.
"In our view, user growth is still more important than unit growth, but we believe this could be a losing argument NT given lack of catalyst, which we believe results in a neutral risk/reward," Nispel said.

Price Action: Apple ended Tuesday's session down 0.78% at $172.40, according to Benzinga Pro data.