Nomura Instinet lowered its rating for the Steve Jobs-founded company from neutral to buy, basing its decision on the company‘s current high valuation versus previous fallouts of iPhone launch cycles.
Jeffrey Kvaal, an analyst for the firm, wrote on a note to clients on Tuesday: “We argue that the stock’s gains for the iPhone X supercycle are in the late innings. We believe unit growth, if not quite ASP growth, is well anticipated by consensus and a historically full multiple.“
After the report was released, Apple stock took a 1% hit in premarket trading on Tuesday.
Apple has been a leader-of-the-pack performer among large-cap stocks in 2017. Through the year it has gained 52% on its value, versus the S&P 500‘s 20% rise. Its current valuation is 15x the company‘s estimated 2018 earnings, noted Kvaal.
When looked from a broader perspective, that is an interesting factor – previous experience shows that, for the iPhone 6 launch cycle, the company‘s earnings multiple peaked at 15x and then dipped strongly to 9x. For the iPhone 5 cycle, the stock went from 13x earnings to 8x earnings.
The firm also lowered its price target for Apple shares by $10, taking it to $175.
“Apple is certainly not the same company as it was five or even three years ago. The growth in its services business is a particularly notable departure though hardly the only one,” he wrote. “We do believe Apple’s improvements merit a richer multiple than in prior years, though marginally so. We do not consider any of these sufficient, either individually or in aggregate, to flout the historical precedent.“
This is one of the rare occasions in which the darling of Wall Street and Main Street attracts negative attention from the latter. Before this, it experienced a downgrade from Mizuho Securities back in June of this year. Since then, it‘s risen 18%.