UBS Downgrades Apple
UBS analysts have downgraded Apple (NASDAQ:AAPL) to a Neutral rating from Buy, citing concerns about demand pressure in key markets and its impact on the company’s growth prospects. Despite raising the Price Target on AAPL shares, UBS analysts highlight negative demand trends in developed markets, particularly in the US, China, and Europe, which have weighed down on sales figures. This downgrade comes as UBS’s latest survey indicates stable to slightly declining iPhone purchase intent over the next 12 months.
Demand Pressure in Core Territories
According to UBS analysts, sell-through figures in Apple’s core territories experienced a decline of 7.5% in the US, China, and Europe during the March quarter. In regions outside these key markets, such as the rest of the world (ROW), there was a 2.4% decrease. Although India, an emerging market, witnessed a year-on-year increase of 34%, the analysts note that the gain only accounted for approximately 500,000 units. These demand trends raise concerns about sustained iPhone growth in the long term, as the unit total addressable market (TAM) and growth outside the largest markets may not be significant enough to drive substantial growth beyond mid-single digits.
UBS Evidence Lab Survey Findings
The UBS Evidence Lab 2Q23 Smartphones Survey results indicate stable to slightly declining iPhone purchase intent compared to six months ago. Notably, the survey reveals a decline of 200 basis points in purchase intent over the next 12 months in the UK, along with declines of 100 basis points in China and Japan. These findings further support UBS’s concerns about the demand outlook for Apple in developed markets.
Valuation and Risk/Reward Assessment
UBS argues that the current valuation of Apple is excessive, as the stock trades at 29 times the analysts’ estimated next twelve months (NTM) earnings per share (EPS). This valuation represents a premium compared to historical averages and the S&P 500 index. Given the persistent softness in developed markets and indications of continued growth pressure, UBS believes that the risk/reward ratio of investing in Apple shares is not compelling.
UBS Downgrades to Neutral and Raises Price Target
In light of the ongoing weakness in developed markets and the anticipated challenges in sustaining growth, UBS has downgraded Apple from a Buy rating to Neutral. However, the analysts have raised the Price Target to $190, representing a multiple of approximately 26 times their estimated fiscal year 2025 EPS of $6.70. UBS also factors in the potential impact of Apple’s auto opportunity in determining the revised Price Target.
Conclusion
UBS’s downgrade of Apple reflects concerns about demand pressure in developed markets and the potential impact on the company’s growth prospects. The analysts highlight negative trends in key territories, supported by survey data showing stable to slightly declining iPhone purchase intent. They argue that Apple’s current valuation is excessive and does not offer a compelling risk/reward profile. Despite the downgrade, UBS has raised the Price Target for AAPL shares. Investors will closely monitor Apple’s performance in the coming months to assess whether the company can overcome the challenges in developed markets and sustain long-term growth.
