Credit Suisse Starts Covering Apple With ‘Neutral’ Rating

Credit Suisse Starts Covering Apple With ‘Neutral’ Rating
April 12, 2019


In a research note, the Credit Suisse analyst said that Apple’s (Nasdaq: AAPL) stock would not be appealing after its latest upswing because it takes more time than expected for the transition from hardware to services. Also, the bank initiated coverage on the tech stock with a ‘neutral rating,’ mentioning a downturn in smartphone demand and the maturing iPhone business. Following the report, the stock closed at $198.95, down $1.67 or -0.83% from the prior close.

To date, the stock of Apple has appreciated by over 25% and is once again nearing a market cap of nearly $1 billion. In March, Apple launched a series of subscriber services, such as Apple TV+ (video), Apple News+ (news and magazines) and Apple Arcade (gaming).

Apple’s iPhone business, the money spinner that generated 60% of revenue in 2019, is “in a tough spot.” It anticipates sales of iPhones to drop 12.4% in 2019, after falling 3.2% in 2018.

In a note to clients, Matt Cabral, the Credit Suisse’s director of equity research, said: “iPhone is in a difficult spot with units >20% below peak as users are holding on to their devices longer than ever (4 years per CSe) and price hikes have likely run their course.”

The company’s crown jewel took a beating following the launch of overpriced iPhones in the fall of 2018, putting a strain on the cutthroat and already oversupplied market. After lower than anticipated iPhone sales and a weakening Chinese economy, the iPhone maker downwardly revised its first-quarter outlook.

Apple has suffered from the economic downturn in China as it keeps losing market shares to domestic brands. After revenues dropped 27% y-o-y in the zone, Apple trimmed the cost of the iPhone by 6% in China. The iPhone XR is now priced at ¥6,199, 4.6% below its price on the 29th of March. iPhone XS and iPhone XS Max are offered for only $74.50 following price cuts of ¥500.

China’s Huawei was the best seller in the smartphone category in the final quarter of 2018. According to a study conducted by Counterpoint Research, Huawei gained 28% of market share. Oppo finished second with 20%, while Vivo obtained a third place with 19%.

Apple took fourth place in the sales of smartphones, with a market share of only 12 %. Credit Suisse analyst said, “no fast fix” is available for a turnaround.

Commenting on the slowdown in China, Cabral said: “Beyond macro conditions, we see deeper structural challenges in China and do not expect a meaningful turnaround without a major iPhone refresh, which is unlikely until 5G in CY20.”

Amid a decline in iPhone business, Apple intends to concentrate on services to generate additional revenue from its vast consumer base. A flurry of fresh subscription services was launched by the company two weeks before, such as TV service, magazine subscription, and gaming group, but the changeover cannot happen in a flash.

Cabral further stated, “We recognize the potential in the shift to services, but believe it will take time for that view to play out.”

By 2021, the analyst forecasts the service business to generate revenue of 65 billion dollars, from 40 billion dollars in 2018. Based on the above facts Credit Suisse has issued a price target of $209 for Apple over the next year. The issues highlighted by Credit Suisse are expected to keep the stock range bound in the short-term.

Technically, the stock is trading between 170 and 210 levels. The stochastic RSI is also in the overbought region. As a result, we can expect the stock to move down in the short-term.

aapl - technical analysis - 12th April 2019

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Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins

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