Shares of Apple Inc. slumped Wednesday, after KeyBanc’s Brandon Nispel recommended investors stop buying, saying valuations are at near record levels and U.S. iPhone sales are likely to struggle.
The stock AAPL,
Nispel cut his rating on the technology behemoth to sector weight, after being at overweight for at least two years.
He believes U.S. sales in Apple’s fiscal fourth quarter, which ended in September, will decline from a year ago for the fourth-straight year, with weakness carrying into the first quarter, as his analysis of credit and debit card spending data is showing “modest weakness.”
In addition, Nispel said he expects sales from U.S. carriers to be soft, as U.S. upgrade rates are trending toward all-time lows. The post-paid growth environment is also slowing and iPhone promotions are being weighted toward higher-priced plans.
And while the Wall Street consensus is for all international markets to show accelerating sales growth, “we struggle to understand why that will be the case,” he wrote.
“In our view, user growth is still more important than unit growth, but we believe this could be a losing argument [near-term] given lack of catalyst, which we believe results in a neutral risk/reward,” Nispel wrote.
Apple is currently expected to report fourth-quarter results on or about Oct. 26.
Nispel also said Apple’s stock is trading at near all-time high multiples of enterprise value versus operating profitability and free cash flow, and is being valued at a “large premium” to the Nasdaq compared with history.
“We believe in order to justify upside to [Apple] shares, peak valuations need to be applied or its growth profile needs to inflect higher,” Nispel wrote in a note to clients.
Apple’s stock has rallied 32.7% year to date through Tuesday, while the Nasdaq Composite COMP has climbed 24.8% and the Dow has slipped 0.4%.
