The Street has speculated for some time now that sales of the iPhone are slowing down, but now Citigroup is raising other fundamental questions about the viability of Apple Inc. (NASDAQ:AAPL) as an investment.
Among the chief concerns of the Citi analysts is the fallout from the Brexit vote, which created a cloud of uncertainty in the stock market.
Because of the U.K.’s decision, Citigroup’s analysts project a steeper-than-expected decrease in Apple earnings.
Citi revised its third-quarter Apple earnings estimates to $41.2 billion from $42.2 billion, and lowered per-share earnings to $1.35 from $1.40.
For comparison, the consensus is for Apple to report $42.35 billion in sales and $1.39 in EPS.
The implications of the U.K. leaving the European Union are beginning to crystallize. The steep drop in the British pound weakens the buying power of its citizens, and Apple relies on the EU for about 13% of its income and on the U.K. for 2.3%, according to FactSet.
Other Factors for Apple Stock
And it’s not just the Brexit weighing on AAPL, as the analysts understand more people are holding onto their devices for longer:
From the note:
“We are lowering our estimates for June and September quarters given potential for lower demand from macro uncertainty (Brexit related), currency volatility and lengthening replacement cycles (average replacement rate has gone from around 24 months in calendar year 2013 to about 28 months recently and our model implies replacement rates could extend to 30 to 36 months.”
Don’t go out and sell off your stock in AAPL just yet, though. The rest of the analyst community, while no longer fawning over Apple in the news as much, is still bullish. Thirty-nine of the 47 analysts covering Apple stock rate it a “buy” or better. And at $95.31, there’s still plenty of upside to the consensus price target of $124.
And even after lowering its estimates, Citi retained its “buy” rating on AAPL stock, noting that Apple’s reach into software and services is only just beginning to take hold. The market seems to agree, as Apple stock dipped slightly after the open, but is now up a quarter of a percent.
If anything, Apple stock is a value right now, trading at just 10.5 times trailing earnings to the S&P 500‘s 24 times earnings. Keep that in mind when Apple Inc. reports earnings on July 26.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
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