He raised his share-price target to $470 from $420, however, reflecting the stock’s recent ascent.
Apple shares recently traded at $436.71, down 0.44%. The stock has soared 49% year to date through Tuesday. Apple’s forward price-earnings ratio stands at 27.7, according to Morningstar.
Mohan made the downgrade because “we view risk-reward as more balanced at these levels,” he wrote in a commentary.
On the plus side, Apple’s product cycle is now less important, it has a loyal user base, its installed base is still growing, its services penetration remains low and it has strong free cash flow, Mohan wrote.
But, with shares already trading at the highest premium to the S&P 500 and consumer-staples multiples in 10 years and consumer staples, he’s wary of several risks.
· “Product gross margin pressure from higher bill of materials costs for 5G iPhones."
· “Unit volume risk in case of higher average selling price to compensate for gross margin pressure."
· “Tough comparisons in 2021 from an unsustainable trajectory (30% growth) of high margin App Store growth."
· “Pressure on services gross margin from content amortization costs."
· “Lower impact from share buybacks."
· “Potential risk of a higher tax rate in the event of a Democratic win in the U.S. elections in November.”
Other risks Mohan cited were the coronavirus pandemic, possible anti-trust regulation on the App Store, and trade risk with China.