Why This Apple Stock Analyst Is Bearish: 'Expect Limited Innovation In The Next iPhone'

Apple Inc (NASDAQ: AAPL) shares were trading mostly flat on Friday and have underwhelmed so far in 2021 after a big run last year.

On Friday, one analyst downgraded Apple and said the iPhone maker’s troubles have just begun.

The Apple Analyst: New Street Research analyst Pierre Ferragu downgraded Apple from Neutral to Sell and set a $90 price target.

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The Apple Thesis: The strong iPhone 12 cycle during the pandemic has set Apple up for a potentially lackluster iPhone 12S cycle in 2021, Ferragu said in the Friday downgrade note. 

“In addition, it is reasonable to expect consumer spending to shift away from electronics as the economy reopens, and we expect limited innovation in the next iPhone line up,” the analyst said. 

Analysts are anticipating 234 million iPhone shipments in Apple’s fiscal 2022, up 2% compared to 2021. Yet New Street is forecasting actual iPhone shipments will fall at least 15% short of current consensus estimates.

The resulting 10% negative revision to Apple’s fiscal 2021 earnings estimates would also likely trigger an earnings multiple contraction for the stock, pushing Apple’s earnings multiple back down toward the lower end of its historical range and resulting in 20% to 30% downside for the share price, he said. 

Actual shipment data suggests the iPhone 12 was the second best-receive iPhone model of all time behind the iPhone 6, Ferragu said. Following the iPhone 6, iPhone 6S reception dropped off significantly, and the analyst said he's expecting that trend to repeat with the iPhone 12S.

In the longer-term, Ferragu said Apple faces additional challenges, including slowing global iPhone base growth and elongating device replacement cycles.

Benzinga’s Take: Ferragu may be correct in his prediction that iPhone 12S sales will be disappointing.

Despite all of its challenges, Apple remains one of the most profitable companies in the world, is aggressively returning capital to shareholders and trades at a very reasonable valuation of just 23.3 times forward earnings and 6.5 times sales.

Photo courtesy of Apple.