Apple shares have generated a total return of 43 percent in the last year, but the stock might face trouble ahead amid a sales slowdown for iPhones, says analyst Abhey Lamba of Mizuho Securities.
He downgraded Apple to neutral from buy Thursday in a report obtained by
CNBC. While he maintained his 12-month price target of $115 for the stock, Lamba says it could fall to the mid-$80s. The $85 level would represent a 21 percent drop from $107 at midday Thursday.
While the next quarterly results, "will likely be extremely solid and March guidance could indicate continued momentum, we believe iPhone sales will decelerate more than normal later in the year," Lamba wrote.
"Additionally, our checks indicate that Apple Watch sales could be disappointing, and other categories are unlikely to offset the slowdown in iPhone sales, creating pressure on out-year estimates."
The firm "now generates over half of its revenues and, according to our estimates, nearly two-thirds of its gross profits from iPhones. The stock's performance is highly correlated to iPhone sales and a slowdown in shipments would make it hard for the stock to work," Lamba noted.
"We think March quarter shipments will be strong as well but there is limited upside to current consensus (approximately 50 million phones) in our view," he wrote in the report.
"Although the launch of iPhone 6 is helping it attract more users, we believe the momentum will slow down again in couple of quarters due to greater penetration of iPhones in end markets and likely saturation of smartphones at the upper end of the market."
Morningstar analyst Brian Colello offers a cautiously optimistic assessment of Apple.
On the plus side, "Apple's strength lies in its experience and expertise in integrating hardware, software, services, and third-party applications into differentiated devices that allow Apple to capture a premium on hardware sales," he wrote on Morningstar.com.
On the downside, "Although Apple has a sterling brand, strong product pipeline, and ample opportunity to gain share in its various end markets, short product life-cycles and intense competition will prevent the firm from resting on its laurels, or carving out a wide economic moat."
Colello puts fair value for Apple at $100.
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