What's Behind the Latest Apple Downgrade?
Apple (AAPL) - Get Report shares fell slightly following an analyst downgrade ahead of its next quarterly earnings report.
On June 21, BMO Capital Markets analyst Tim Long reiterated his Outperform rating on Apple shares but lowered his price target to $116 from $118, citing decreased gross margin.
"For the September quarter, we now estimate corporate gross margin of 37.5% versus consensus 38.3%," Long wrote in the Thursday note. "We believe the dilution from the iPhone SE was more pronounced in June, and September will be more driven by initial volume and gross margin on the iPhone 7. We believe management will give a broader guidance range of 37-38% for gross margin, which, though below consensus, is more expected by many investors."
Apple shares have fallen about 6% in the past three months. On Thursday, they dipped 0.5%, to $99.44, and have not closed above $100 since April.
The downgrade is symptomatic of analysts' confusion about the tech giant, said Jim Cramer, founder and manager of the Action Alerts PLUS portfolio.
"Here's what happens with Apple: there are a lot of faux buys -- people who really want to not have a buy [rating] on it," he said. "That BMO piece was very typical. That was a number cut, nothing exciting."
Shares have risen in July, however, due to the runaway success of the Pokemon Go mobile app.
"That's the service revenue stream, because you download it on the app, and they do make money," Cramer explained.
However, he doubts that Pokemon Go will be enough to lift Apple's performance enough for a good quarterly earnings result.
"I am adamant and continue to be adamant that this is not a good quarter, and those who think they can ramp from this quarter either have to know something about the iPhone 7 that I don't know or that the service stream has really exploded," he said.
In contrast, Needham analyst Laura Martin believes that Pokemon Go alone could add $3 billion to Apple's revenue over the next year or so.
"Assuming 20% penetration at maturity with revenue to AAPL of $0.05/person/day suggests extra revenue to AAPL from Pokemon Go of $3B over the next 12-24 months, depending on consumer adoption timing," she wrote. "At a 1.8x revenue multiple, this translates into market cap upside potential of $5.5B, or $1.00/share of added value."
Apple reports its third-quarter earnings on Tuesday.
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