Merrill Lynch cuts Apple rating; Jefferies, Global Equities foresee impending ‘disaster’

“Shares of Apple are down $1.01, or 0.9%, at $113.63, in pre-market trading following a drop of 3% yesterday, and the rhetoric on the stock has suddenly gone red-hot negative overnight,” Tiernan Ray reports for Barron’s. “One of the first cracks in the bull camp has come this morning from Merrill Lynch’s Wamsi Mohan cut his rating on the shares to Neutral from Buy, and cuts his price target to $130 from $142, mainly because of what he sees as a ‘deceleration’ in iPhone sales.”

“Mohan advises investors should ‘wait for a cyclically better entry point’ given ‘the financials will take a pause from the significant growth witnessed over the past year,’ even though ‘We view Apple as one of the most innovative companies in the world with significant optionality driven by $200bn cash on hand and the ability to enter new markets,'” Ray reports. “Mohan is concerned about China, and about slowing of new users coming into the iPhone fold.”

“Also this morning, Jefferies & Co.’s Arthur Liao cut his rating on Apple contract manufacturer Pegatron to Neutral from ‘Add,’ warning of an impending supply chain ‘disaster’ regarding iPhone. Liao cut his target to $75 in New Taiwan Dollars from $109 previously, writing that the company faces a sharp-curtailment in the number of iPhones that it would appear Apple is building for Q4 of this calendar year,” Ray reports. “Front and center on the hyperbole front this morning is Global Equities’s Trip Chowdhry, who cuts his target on Apple to $155 from $176, writing ‘We are expecting a disastrous China business for Apple and are reducing Apple’s revenue estimates from China for both 4QFY2015 and full FY2016 by 8% (2% higher than the decline in Revenue suffered by any of the closest proxies during the 2008-09 Global recession).'”

MacDailyNews Take: As we wrote back on June 13th:

Those who are interested in actually analyzing companies vs. fomenting low-information investor sentiment against them, are those who listen to what Apple’s management tells them:

“Even if a particular data point were factual it would be impossible to accurately interpret the data point as to what it meant for our overall business because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supply performance can vary. The beginning inventory positions can vary, I mean there is just an inordinate long list of things that would make any single data point not a great proxy for what’s going on,'” Apple CEO Tim Cook stated on January 23, 2013.

Read more in the full article here.

MacDailyNews Take: More prodding of the weak-minded. The Big Lie about AAPL is in full effect.

Now for some facts regarding Apple’s growth prospects:

Apple’s iPhone 6/Plus penetration among iPhone owners is a mere 27%. That means there are 73% primed for upgrading to the iPhone 6s/Plus. And, that’s not counting those fleeing from fragmandroid to quality in ever-increasing numbers. And iPhone has 99% user satisfaction. Every year or two, there are hundreds of millions of iPhone users waiting to upgrade.

Like PC sales, iPads have a far longer replacement cycle than smartphones, which turn over every two years (at most). Wholly unlike PCs. “iPad Pro” (likely) and, indeed, true iPad multitasking for iPad Air 2 and newer (also to debut this fall), await in the wings, with iOS 9 set to arrive in a few months. Older iPads need not apply of which there are hundreds of millions in use today. The first real round of iPad upgrades loom.

Apple Watch’s best month last quarter was the last month of the quarter, in June, as supplies finally hit stores and could begin to satisfy demand. Demand that is sure to grow as we approach the holiday shopping season.

According to IDC, Apple’s Macintosh has 13.5% market share in the U.S. and 7.5% worldwide. Apple’s Mac has outgrown the PC market for the last several years. Apple’s indomitable Mac has headroom of a mere 86.5% in the U.S. and 92.5% worldwide.

We won’t even get into Apple TV + Internet TV, Apple Pay, or Apple Music, much less Apple Car.

Sometimes, as with recent record results, even when it’s very good, it’s made to seem bad to low-information investors.

The facts: Apple sold 47.5 million iPhones in the third quarter, up 35 percent year-over-year. But analysts had expected around 49 million units. Analysts also expected growth of more than the mere 35% that Apple posted (in the June quarter, no less) and wanted guidance of more than $51.13 billion – $51.13 BILLION! – in the 90-some-odd-day quarter prior to holiday shopping season in which Apple’s all-time record for the September quarter, so far, stands at $42.1 billion, but Apple only gave guidance with a top end of $51 billion, not $51.13 billion for which some analysts had hoped.

Those are the reasons, besides single data points being misconstrued (by mistake or on purpose), for all of this handwringing over Apple.

SEE ALSO:
‘The Curse of the Dow’ bites Apple – August 4, 2015
Apple enters correction territory: More carnage to come? – August 4, 2015
Analysts: This is the catalyst to push Apple higher – August 4, 2015
Why Apple’s next-gen iPhone 6s/Plus will generate 20% growth – August 4, 2015
Why there won’t be an iPhone 6s/Plus bump – August 4, 2015
Apple stock implosion shreds $113.4 billion and counting – August 4, 2015
About all of those reports that Apple is in dire straits – August 4, 2015
Continued Apple swoon could crush this market – August 4, 2015
Apple replacing AT&T causes Dow Jones Industrial Average to suffer – August 4, 2015
Apple stock now officially in correction territory as it crosses below key technical level – August 3, 2015
Nasdaq retreats amid tech selloff after Apple’s record results – July 22, 2015
Apple earnings: Good is never good enough – July 22, 2015
Cowen downgrades Apple on record quarterly earnings results – July 22, 2015
For Apple, more success raises more questions – July 22, 2015
Sorry, haters: Tim Cook confirms Apple Watch sales are much better than you think – July 22, 2015
Here’s how many Apple Watch units Apple sold – July 22, 2015
Drudge screams: ‘APPLE FUTURE QUESTIONED’ – July 21, 2015
Apple poised for $50 billion valuation loss after posting ‘disappointing’ record earnings – July 21, 2015
Apple shares plunge after ‘disappointing’ record third quarter results – July 21, 2015
MacDailyNews presents live notes from Apple’s Q315 Conference Call – July 21, 2015
Apple pulverizes the Street with record third quarter results – July 21, 2015

34 Comments

  1. The thing is, if these analysts are right, how come none of them saw it coming? Based on their own analysis they were all expecting Apple to do much better. If things are looking more negative than positive then they are basically admitting that they have no clue what they’re talking about and that their predictions were garbage. As such if their predictions were garbage then their disappointment is completely misplaced, as are their proclamations of doom now.

  2. Looks like someone wants to move big time into Apple stock by talking down the price. Must be a storm coming if their poor investments require talking down Apple in order to flee to safety.

  3. An expert is someone who gets things right most of the time. Name a top analyst who’s generally predicted Apple correctly over the past twenty years. Now name one who’s gotten Apple wrong. One list is extremely long. One has no one on it. Incompetence? Stock manipulation? Whatever the case, these folks should be categorically ignored (if not arrested).

  4. The reality is that Apple’s revenues in the next 2 quarters are going to be the biggest ever . . . we don’t have to worry about Apple . . . what SCARES me is the concentration of power on Wall Street, that a few people get in a room and press the “DOWN” button and your stock can plummet for no reason whatsoever . . . If they can do it to Apple, what message does it send to other companies?

    1. The problem is that it won’t happen to any of the powerful companies like Amazon or Google. Those companies are bulletproof and can do no wrong in the eyes of investors. What puzzles me is how Apple has so much wealth and should be able to diversify into many solid businesses, but doesn’t take advantage of that. Throwing money into stock repurchasing hasn’t helped Wall Street’s confidence in Apple at all. It seems to be doing quite the opposite. And then there’s Tim Cook. I think he’s doing a decent job of running Apple but investors can’t stand the guy because he’s not greedy enough or because he’s gay. He’ll never be one of the Wall Street Boys hero CEOs.

      The power of Wall Street definitely frightens me because as you say, a few powerful people have the power to take a company down in an instant in value. Apple is as solid as it has ever been and probably far wealthier and healthier than both Amazon and Google combined but look as this dog is beaten to hell while Google and Amazon fly high.

      There’s never any damage control coming out of Cupertino and the company is an easy target for thieves and liars. Apple should buy a news agency like MSNBC and feed dirt to other companies like it’s done to them. I have this collusion theory because it just seems too easy for people to change Apple’s direction on a dime. How can a company go from solid performer to no future growth in just a couple of days.

      Google has exploded in value in just a couple of months and I haven’t see anything unusually strong about the company. Where’s all of this wealth coming from except from a rapidly expanding P/E. Apple P/E is the only one shrinking and I just don’t get it. It just makes it look like Apple is being run by a bunch of useless weaklings. Even Microsoft is looking stronger than Apple and that’s so disheartening.

      1. “What puzzles me is how Apple has so much wealth and should be able to diversify into many solid businesses, but doesn’t take advantage of that.”

        It is precisely because Apple stays focused that it has that wealth.

        If they started buying up businesses they would lose everything that made them successful. It is going to take continued discipline from management to avoid calls like the one you just made. In the short run their cash would have a higher return, but it would put the company on the same course of complexity that has watered down the success of Google, Microsoft, etc.

        This is why they are investigating doing a car, instead of buying up the thousand little, medium and big software/hardware businesses they could afford like MS and Google do. Even though that seems like a leap, it will keep the company focused on a few products which are core to customers lives.

  5. I generally don’t pay much attention to Wall Street predictions, since there are too many variables to yield an accurate forecast of how something may or may not perform with any certitude. Wall Street has a history of being wrong as many times as it’s
    correct: The Law of Averages. However, analysts do follow the comments of consumers and form opinions about companies. What bothers me is how Apple has moved from being characterized as a “computer and software company” to its more frequently referred to label as “the gadget company.” This phrase speaks volumes about Apple’s perception on Wall Street. What also speaks volumes is the growing perception that Apple’s software has become problematic, regardless of the innovative products it produces. Much of this perception has taken place during the Tim Cook era. As an Apple computer user since the 1980s, I am deeply concerned about Apple’s lack of quality software, which is more than a perception ~ it is a reality that needs to be seriously addressed. The list of issues – such as the cloud, iTunes, iWork, and many others – grows longer every day. Innovation is great, but without attention to solid software to support it and “just works”, Apple may find Wall Street and its critics less than optimistic about its future and value.

    1. While I agree, the software side appears to have suffered, I would say even since before Steve passed away, none of these companies or analysts are discussing those specific user issues. They are routing a company with the highest returns ever.

      It appears they are internally and consistently driving this stock down in front of everyones eyes, for no logical reason. These people should be in jail.

      Apple should go private. Quarterly reporting means everything from quality and standards has to continually go down to keep a stock up. No way does the market reward a company for making a solid return while improving their products or customers end-experience.

      1. yeah, and how, exactly does apple going private benefit us who are shareholders?

        if it goes private we are no longer the beneficiaries of its earnings.

        your suggestion basically cuts off your nose to spite your face and disfigures the rest of us at the same time.

        as far as the presumed correlation between quality and quarters goes, they have the talent and resources to get it right the first time, which is what they need to get back to doing.

        my guess is that the quality slippage is not so much a product of quarterly deadlines, but mote due to the fact they are expanding into so many product lines (electric cars?) that they may be losing their focus.

        you might want to give your idea more thought.

        1. I have given it lots of thought.

          I’m not about the earnings, I’m about the user experience, I’m about independence and willingness to venture into new areas without a gazillion people second-guessing and over-analyzing every move.

          And. when you are trending beyond successful, this is what quarterly reporting gets you.

          There has to a better way. Not sure how someone like yourself could still benefit – maybe they qualify investors or something, but Apple will always be better without investor interference.

  6. With computers trading most of the stocks now a little good or bad news can send a stock soaring up or down for almost no reason. The stock market is nothing like it was at the beginning of this century.

  7. I have can idea, although MDN probably won’t like it. Stop reposting these analysts inane predictions. They are garbage! Find more interesting things going on in the Apple universe to repost and comment on. (Yea, I know. Not holding me breath on that one.)

    1. If MDN doesn’t repost these analyses, then less light is cast upon the scurrying insects feasting on their harvest of fear.

      MDN refutes their analyses by exposing their biases and their abysmal track records, and then makes counter-predictions that have been right on the mark more often than not.

      1. Well, you bring up a good point in that MDN and those of us who track the Apple universe are far more prescient in our predications than these well paid analysts.

        This begs the question. Why wouldn’t these analyst houses just go out and hire people who really understand what Apple is doing? Just speculating here but maybe that’s not what their business model is about. Maybe they’re not in the business of doing real industry analysis at all. Maybe their real business model is to drive market momentum either up or down – doesn’t matter which way – and get know-nothing investors (the sheep) to buy and sell for the big clearing houses. But what do I know.

        It would be enlightening to know the identities of their real paymasters. But I’m sure that’s very closely held information.

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