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AAPL Stock: 517.96 ( -3.72 )

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Barclay's analyst downgrades AAPL on growth worries

updated 06:30 pm EST, Thu February 20, 2014

Ignores developing markets, or Apple's other products

There is a tendency among analysts to think of Apple as only "the iPhone maker" and ignore its other products and services, feeling that the fortunes of its most popular and profitable product -- the iPhone -- is the key to the company's overall health, at least in terms of its performance on Wall Street. Barclay's analyst Ben Reitzes told investors in a memo on Thursday that he expects AAPL to stay within a narrow range for the next two years.



Comparing Apple's stock to that of Microsoft -- which has remained fairly stagnant for more than a decade -- Reitzes blamed his prediction on a "mature" smartphone market (presumably referring only to North America and perhaps Europe: there is plenty of evidence of smartphone growth in developing markets, for Apple and other competitors) and his belief that as Apple continues to add new features to its future iPhones, that "margins will be squeezed" due to the cost of such things as "sapphire glass, curved glass and new batteries." He further doesn't expect any new products from Apple -- such as the rumored iWatch or upgraded and/or overhauled Apple TV concepts -- to do well enough in their first years to alter the overall sales picture.

As a result, Barclays has downgraded AAPL from "Overweight" to "Equal-weight," with a target price of $570. The company believes that margins on iPhones have peaked, and that "the law of large numbers" means that Apple is unlikely (in their view) to outperform expectations by a wide margin again, given the familiarity and feature maturity of its best-selling product.

Critics would point out that Reitzes appears to be ignoring signs of significant growth in iPhone sales in China, Russia and other markets, as well as the continuing rise is tablet sales as consumers continue to ditch traditional desktop and notebook PCs, particularly in the enterprise sectors. Reitzes also appears to be discounting the growth of both Apple's iTunes-related services as well as the slow-but-steady uptick in Mac sales as part of the company's overall bottom line.

He may also be dismissing the possibility of a 2014 "surge" of upgraders when the iPhone 6 comes out, as iPhone users are notoriously loyal to Apple, and millions of iPhone 5 early adopters will see their contracts end this year. Finally, Apple is still aggressively buying back its own stock, which could continue to goose the valuation of the remaining stock across the next year. Given the fluctuations of AAPL over the past two years, Reitzes' vision of a narrow trading range across the next two years seems unlikely to long-time AAPL stock watchers.




by MacNN Staff

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Comments

  1. garyp

    Fresh-Faced Recruit

    Joined: 01-16-00

    Barclay's analyst makes the usual mistake of looking only at what Apple is doing now, not what they are going to do. Apple does not comment on what it's going to do, but for an idea, look at what Apple has already done. My bet is with AAPL. Analyst is a bozo.

  1. iphonerulez

    Fresh-Faced Recruit

    Joined: 11-28-08

    Ben says to dump this turkey. iPhone growth is capped and there are no worthwhile new products in the pipeline. Seriously, why does Apple even bother to stay in business since it has no future What happened to all the analysts in early 2012 who said Apple was on the way of becoming a trillion dollar market cap company? Has Apple's modus operandi changed that much since then? As a shareholder I'd like to keep betting on Apple but nearly all of Wall Street seems to be betting against Apple. Institutional investors continue to flee Apple and run to Google. This guy only proves that Apple doing buybacks are a waste of time.

    Apple should acquire a company with a future or invent some radical new product that no one has ever thought of before but everyone will want one. Will Apple ever design a product that will have 90% market share and can't be copied for half the price? Why does every product Apple have success with become immediately overwhelmed by copycats and then it's Apple that is always considered the big loser?

    Now, Reitzes is saying Apple will be at $500 for the next two years while Google easily runs up to $1500 a share. It really hurts to be an Apple shareholder.

  1. climacs

    Junior Member

    Joined: 09-06-01

    It's pretty simple, Wall Street expects Apple to come up with a grand slam home run every year or two, plus Tim Cook has yet to hit one, they were all Steve Jobs. We should know this year if Apple can still pull an iPhone out of its hat. I say yes and hold tight, a year from now AAPL shareholders should be vindicated.

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