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BofA Downgrades Apple, Saying Stock Too Pricey

BofA Downgrades Apple, Saying Stock Too Pricey
(Christopher Sciacca/Dreamstime)

By    |   Friday, 07 August 2020 01:36 PM

Not everyone on Wall Street has unwavering faith in Apple Inc. shares, despite the tech giant approaching a $2 trillion market valuation as its stock has soared about 50% so far this year.

BofA Global Research analyst Wamsi Mohan recently cut his rating on Apple stock (AAPL) to “neutral” from “buy,” even as he lifted his price target to $470 from $420, largely based on valuation, Barron’s reported. “We view risk/reward as more balanced at these levels,” Mohan wrote in a research note cited by the financial publication.

Near midday Friday, Apple shares were at $446.45, down $8.34, or 1.83%.

In his note, Mohan cited many potential risks, among them:

  • For iPhones, he worries that a higher bill of material costs for 5G iPhones compared with current models could pressure gross margins.
  • He says the App Store will face a tough comparison next year from unsustainable pandemic-driven growth this year. Mohan worries about pressure on services gross margins from content amortization costs.
  • He sees an eventual easing of the company’s stock-buyback program, and notes that the company appears to have slowed repurchases as the stock has rallied.
  • Mohan also sees risks of a higher tax rate if the Democrats win the November elections and remains concerned about trade policy given the company’s substantial exposure to the China market.

However, the tech giant has certainly enjoyed a sea-change in fortune since the calendar turned to a new year. 

Earlier in 2020, Apple appeared to be caught in a horrible bind. The initial spread of the novel coronavirus shut down the factories in China that assemble its iPhones and also closed its retail stores in a country that ranks as the company's biggest market besides the U.S.

Things looked even bleaker in March after the global pandemic shoved the U.S. economy into what now looks to be its deepest downturn since the Great Depression nearly a century ago.

Since then, Apple has managed to shine amid the gloom, putting it on the cusp of becoming the first U.S. company to boast a market value of $2 trillion, just two years after it became the first to reach $1 trillion.

It looks like “a performance for the ages," as Wedbush Securities analyst Daniel Ives described it last week after Apple released unexpectedly strong earnings for an April-June quarter during which most U.S. consumers were stuck at home and the company's U.S. stores were closed most of that time, the Associated Press reported.

So how has Apple defied the doomsayers? Factories in China reopened by March and Apple's hugely loyal customer base trust its products so much that they continued to buy iPhones and other devices online.

The company also made a decision several years ago to focus on selling digital services, which now include music and video streaming and warranties on top of the commission it collects from an app store now under antitrust scrutiny.

An upcoming four-for-one stock split that will make Apple's shares more affordable to more investors also sparked a rally after it was announced last week.

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StreetTalk
BofA Global Research analyst Wamsi Mohan recently cut his rating on Apple stock (AAPL) to “neutral” from “buy,” even as he lifted his price target to $470 from $420, largely based on valuation, Barron’s reported.
apple, stock, shares, bofa
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2020-36-07
Friday, 07 August 2020 01:36 PM
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