Barclays’ Mark Moskowitz weighed in on Apple Inc. (AAPL) in a research note issued to investor on Friday, expressing caution toward the company’s stock with a $6 price-target cut to $115, but maintaining his ‘Overweight’ recommendation on the equity. Barclays’ price cut, their third consecutive pre-earnings reduction, indicates the relatively skeptical tone the Street has taken lately toward Cupertino.
Moskowitz writes that Apple stock can still work after any post-earnings weakness, as the lead up to the iPhone 7 launch is not too far away. Still, the analyst expects fiscal year 2017 to be Apple’s next mega cycle, when it skips to the iPhone 8 to reveal major changes, so more volatility for the rest of this year could persist in the stock after the initial iPhone 7 rollout.
Apple stock rallied Thursday and closed near the $99 level. Still, ticker is down more than 25 percent, the biggest Dow laggard since last record highs set in May 2015. Despite the slump, Apple is less than 11x the earnings Wall Street expects for next year. That compares with a price-to-earnings ratio of 23.83x for the S&P 500.
Following Barclays’s price target cut, CNBC”s “Fast Money Halftime Report” debated if Apple stock can turn around.
“I think so,” John Spallanzani, Chief Macro Strategist at GFI Group, said, adding, “you have earnings coming out, you have iPhone 7, there is talk about them building huge data centers, you obviously have a nice yield, and now it’s the time to take a shot.”
While these are valid points, the main issue we think with Apple’s stock is whether these categories have the overhauling power to impact the company’s bottom line and force an improvement in Apple’s valuation to send shares higher. Additionally, let’s not forget that Cupertino posted a year-over-year decline in revenue for the second quarter of its 2016 fiscal year, marking the first time it failed to grow its business in almost 13 years. Apple is also expected to release its third-quarterly earnings on July 26 with Wall Street analysts on average expecting the iPhone maker to post $42.35 billion in sales during the quarter. This would show a 16.3% decrease from the 2Q16 revenue of $50.6 billion, as well as a decrease of 14.62% from the same period in Q315. EPS in 3Q16 are expected to come in at $1.39, a decline rate of 24.9 percent from $1.85 per share a year earlier. By the way, EarningsWhisper.com reports a third-quarter whisper number of $1.43 per share.
It goes without saying that Apple’s long run of continuously printing massive year-over-year revenue growth has come to an end. That’s why the trend of AAPL persists to the downside and as a result there’s no reason, at least in the near term, to expect it to turn around.
Stock Performance
Shares of Apple Inc. closed at $98.78 on Friday, with an intraday low of $98.50. The stock, which has underperformed over the last year, declining 22 percent, closed almost a point lower than the 200-day moving average of $99.49. A failure to break this key level to the upside could prompt further technical downside for the name.
Apple stock currently prints a one year loss of 21.56 percent, and a year-to-date loss of around 5 percent. The $541 billion market cap company is down nearly 26 percent from the 52-week-high of $132.97 it reached on May 22, 2015.
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