Apple’s Valuation Faces Headwinds Amidst Rising Competition


Redburn Atlantic, a renowned analyst firm, recently downgraded Apple’s stock due to growing competitive challenges. Analyst James Cordwell, while maintaining a target share price of $200, has shifted his stance from Buy to Neutral.

A Challenging Year for Apple

Apple’s stock has experienced a decline of 0.4%, currently trading at $184.49, resulting in a total loss of 4.3% this year. In contrast, the S&P 500 gained 0.4% during the same period.

Future Expectations and Concerns

Cordwell foresees a potential return to growth for Apple’s iPhone by CY24. However, he emphasizes limited upside potential in the coming years, and an underwhelming performance in the March quarter might undermine confidence in future prospects.

China’s Competitive Landscape

Cordwell highlights the company’s competitive position in China as a key concern. Huawei’s emergence with affordable alternatives has resulted in Apple’s premium smartphone market share decreasing from 75% in 2022 to 71% in 2023. In comparison, Huawei witnessed an increase from 3% to 5%.

The Geopolitical Factor

In addition to heightened competition, geopolitical tensions add complexity to Apple’s operational landscape, potentially hindering its performance in China.

Apple is yet to respond to requests for comment.

Overall, while acknowledging potential growth in the future, Cordwell cautions that Apple’s valuation might face headwinds amidst intensifying competition and geopolitical challenges, particularly in the Chinese market.

Apple Stock Valuation Reflects Premium Positioning

According to a recent report by FactSet, Apple’s stock valuation now reflects its premium positioning in the market. Currently, the stock is trading at approximately 27.6 times the per-share earnings expected for the coming year, which is higher than its five-year average of 24.2 times.

Analysts’ Sentiments

However, fewer analysts remain optimistic about Apple stock. Out of the 44 analysts tracked by FactSet, 25 view the stock as a Buy, 15 rate it as Hold, and four advise selling. In comparison, last year at the same time, 30 out of 42 analysts considered the stock as a Buy, eight as Hold, and four as Sell.

Buying Opportunity amidst iPhone Demand Concerns

Amit Daryanani from Evercore, who has been a long-time Apple stock bull, expressed his views in a note dated January 6. He believes that the recent decline in Apple’s stock presents a buying opportunity for investors, despite concerns regarding iPhone demand. Daryanani rates Apple at Outperform and has set a price target of $220.

Offsetting Weaker China Demand

Daryanani also noted that while there may be weaker demand in China due to Huawei’s headwinds, Apple is experiencing strength in the United States and other emerging countries like India. He added, “In addition, we think there are multiple ways for AAPL to protect their bottom line and free cash flow even if demand is softer, via both gross margin expansion and operating expense control.”

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