BofA: Six downside risks that led it to downgrade Apple

"Shares have outperformed significantly YTD and have been perceived as a relative safe haven, however..." — Analyst Wamsi Mohan

From a note to clients that landed on my desktop Thursday:

We downgrade shares of Apple to Neutral from Buy and lower our PO to $160. Shares have outperformed significantly YTD (AAPL down 16%, S15INFT down 29%) and have been perceived as a relative safe haven. However, we see risk to this outperformance over the next year, as we expect material negative est. revisions driven by weaker consumer demand (Services already in slowdown and we expect products to follow)...

We view the key risks as the following:

(1) a weaker iPhone 14 cycle as risk to consumer spending is elevated globally (especially in Europe) and lead time data has been moderating even for Pro models;
(2) weaker near-term Services trajectory where App Store and Licensing (Google payments), which account for over 60% of Services, have incremental risk of deceleration;
(3) stronger Pro-mix won’t offset decline in rev/profit if overall units decline (see Figure 3);
(4) stock performance is correlated to gross profit dollars that will likely decline y/y over the next few qtrs.;
(5) reversion to pre-COVID levels for iPads and partially on Macs; and
(6) pressure from a stronger dollar (headwinds from yen, pound approx. 20% y/y in C4Q, euro 15%, RMB 11% and while hedges/pricing provide some offset, demand destruction is likely).

Downgrades to Neutral from Buy, cuts target to $160 from $185. 

My take: Bloomberg yesterday, BofA today. A one-two punch.


  1. David Emery said:
    I think Mohan is wrong on some of these, but at least he provides credible reasoning, rather than “sources familiar with the matter.”

    September 29, 2022
  2. Adam Stein said:
    This is a sensible outline of the risks to AAPL. That doesn’t mean it’s going to come true.

    September 29, 2022
  3. Fred Stein said:
    According to Counterpoint as reported in Financial Times Sept 23, iPhones ASP will hit $944 this Q4 vs $873 last Q4, an increase of 8.1%. Does Wamsi really think units will drop by 8.1%?

    And buybacks add 4% to EPS.

    Apple remains a safe haven. Today’s price action dramatically lowers downside risk.

    September 29, 2022
    • John Konopka said:
      @Fred. The strong dollar raises consumer prices but also lowers cost of goods and cost to assemble.

      September 29, 2022
  4. I give him point #6, Apple adjusted iPhone 14 pricing in UK and a few other places to adjust for currency devaluation. Any major dude could have advised about the risks associated with the strong dollar.
    So far as #1 – 5, were the sources for these distant prognostications in the footnotes, maybe?
    Shouldn’t Mr. Mohan of Merrill Lynch reveal that he based some of his conclusions on BoA-owned affiliate Bloomberg’s questionable article citing dubious Apple suppliers willing to risk their lucrative Apple part/assembly contracts for a news article?

    September 29, 2022
    • Steven Philips said:
      Y’know I understand all the price increase stuff and the reasons for and all, but if I decide I want a new Mac, iPad, iPhone etc. and I walk into the Apple Store and they tell me it’s 50.00 (whatever currency) more than I expected I won’t turn around and walk out.
      Can’t speak for everyone, but everyone knows Apple is not a budget device.

      September 29, 2022
      • S Lawton said:
        Its not the price increase that is the concern but the strong dollar. Other countries get more for their buck because their currency is less than the dollar. A strong dollar gives Apple less bang for the buck outside the US.

        September 29, 2022
  5. Rick Povich said:
    I missed taking some profits when AAPL was around $180 and groused for a while. I did take some when it got back up to $171 and I (and the wife) am glad I did. I can sit back and watch the goofy games play on. Cost basis was $0.69. Not a big haircut today just a minor trim – albeit the result of some shady “creative” writing – yet again.

    September 29, 2022
    • Aaron Belich said:
      I am very jelly!

      Congrats to the Longs!

      September 29, 2022
  6. Daniel Epstein said:
    A bit of a rant here. From what I can see Wamsi’s major thesis is Apple has outperformed other stocks in general and that is a cause for concern on his part. Many other analysts use similar arguments about Apple. It’s PE is higher than the average of the SP 500 etc. If you think Apple is a commodity that trades in line with the stock universe than this argument could be reasonable. Of course one of Apple’s best attributes is that its products are not commodities and neither is the stock. His other concerns about Apple’s growth and revenue in this environment could be correct but he doesn’t have complete access to that info and that has been a concern of many bearish analysts through many cycles which have usually been too pessimistic. If the quarter beats expectations my question to him would be “Do you believe in your thesis enough to get fired for it if your wrong?” He still has a price target higher than the current price. There haven’t been too many of the bears who have lost their jobs when their conclusions about the numbers turned out totally without merit. Which is a shame considering the angst and damage they can cause. Same thing with seemingly bad news reports about Apple and hearing other people take as fact items like Bloomberg report as an indication of how Apple is doing and then making recommendations is a very tired reason to avoid Apple during many of its best growth periods. I still think they are using the Apple name to draw attention to themselves more than guiding investors on what is really going on with the company and the stock.

    September 29, 2022

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