|JUST IN...Pacific Crest: Sell Apple, Buy Google (AAPL, GOOGL)|
Pacific Crest is urging investors to refrain from buying more Apple stock insisting that the money could be better spent backing one of the company’s biggest rivals in the tech industry: Alphabet (Google).
(See also: Will Alphabet overtake Apple as No.1?)
In a note, which was published on Sunday and reported on by CNBC, Andy Hargreaves, an analyst at investment banking firm Pacific Crest, downgraded Apple’s shares to sector weight from overweight, based on his concerns that the soon-to-be released iPhone 8 might not live up to the lofty expectations of the Cupertino, Calif.-based company.
Hargreaves claims that Apple hasn’t factored in a number of risks linked to its latest smartphone model, prompting him to cut the company’s earnings forecasts for this fiscal year and predict that the high-flying stock could fall $10 to $145 a share over the next 12 months. (See also: Apple's $1,000 iPhone 8 Seen Fueling Stock Price.)
"We believe AAPL anticipates strong performance in the iPhone 8 cycle, while providing relatively little weight to risks through the cycle or the potential for iPhone sales to decline in FY?19," he wrote in the note.
Aside from questioning whether the iPhone 8 can match Apple’s high sales projections, Hargreaves also argues that supply chain constraints could eat into its gross margins — and even result in a costly delay to the phone’s launch date. iPhone profit margins have reportedly been in decline over the past five years, due to the rising costs of making these increasingly sophisticated handsets.
"Recent supply checks suggest iPhone 8 (OLED) may be delayed until October, with limited initial supply that ramps through F1Q,” Hargreaves added. “Consequently, we are shifting iPhone units out of FY17 into FY18, which, along with an increase to our iPhone 8 ASP estimate, drives our FY17 EPS estimate down to $8.86 and our FY18 EPS estimate up to $10.53."
Pacific Crest is the fifth brokerage firm to give Apple’s stock a hold rating. According to Zacks, most analysts – 17 in total – rate the shares a “strong buy”. A further six have the shares on a “buy”, while two rate the shares a “strong sell”. (See also: iPhone 8 Supercycle Will Release Pent-Up Demand: Credit Suisse.)