Apple Inc Stock Receives Wells Fargo Downgrade; Others Maintain Buy Rating as Apple Enters 'Year of Innovation'

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By Reissa Su | January 4, 2014 12:46 PM EST

Apple Inc shares dropped 1.12 per cent on Jan. 2 after receiving a "Market Perform" rating from a Wells Fargo analyst. Maynard Um downgraded Apple's stocks from an Outperform rating to Market Perform due to market concerns. He maintained the stock's valuation between $536 and $581. Wells Fargo has become skeptical of Apple Inc because of gross margin concerns. 

Despite the downgrade rating of Apple stock, the analyst continues to be positive of the company's gross margins and the benefits of strong iPad and iPhone sales. Wells Fargo believes Apple Inc's growth will be triggered by the release of the iPhone 6, iWatch and the success of the iBeacon. The company can also stand to benefit from a larger buyback program or increase in dividends.

Based on historical trends and figures, Mr Um has observed that Apple Inc's gross margins decline after the company releases a new iPhone version like the iPhone 5. Gross margins tend to rise with the launch of the iPhone's upgraded version such as the iPhone 5S.

With those figures in mind, Apple's gross margins may suffer with the iPhone 6 launch believed to be within 2014. Aside from gross margins, another significant concern mentioned by Wells Fargo is Apple's limited market opportunity. The company's products are engaged in a few market segments like smart phones, tablets and PCs.

After the early market trading on Jan. 2, Apple Inc shares slightly dropped 0.93 per cent at $555.60.

Apple stock still a "Buy"

Despite the Wells Fargo downgrade, 37 analysts still give Apple's stocks a Buy rating. A compilation of reports will reveal only 2 analysts have given a Strong Buy rating while 13 went with a Neutral rating.

Unlike the Wells Fargo analyst, Brian White from Cantor Fitzgerald is optimistic about Apple Inc's performance in 2014. Mr White believes it will be a "year of innovation" for the company since it has been 3 years since Apple launched a truly innovative product.

2014 is expected to be the year of the iPhones with the partnership of Apple Inc andChina Mobile. The deal will enable both companies to attract more customers and gain a bigger share in a market with 1.2 billion subscribers. China Mobile's retail stores will begin selling the iPhone 5C and iPhone 5S on Jan. 17 as indicated in the company's official statement. Apple investors may have something to be excited about for the rest of the year. 

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(Photo: REUTERS / Mike Segar)
The Apple Inc. logo is seen through raindrops on a window outside of the New York City flagship Apple store in New York, January 18, 2011.
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