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HSBC Downgrades Apple Stocks Resulting Drop In Share Price

HSBC Downgrades Apple Stocks Resulting Drop In Share Price
While Apple Inc. has been facing trouble with reduced demand for its latest launched iPhone models and with a number of its key suppliers and assemblers issuing profit warnings for the current year, the company’s shares were downgraded by lender HSBC.
Its analyst Erwan Rambourg downgraded the stock to hold from buy and said in a note the Apple shares were "too late to sell, too early to buy".
This downgrading resulted in a fall of 2.1 per cent in the shares of the company. The company has seen its shares drop by almost 19 per cent in the last three months.
"Apple has to innovate to ensure that the installed hardware base doesn't shrink," wrote Rambourg. He also suggested three "complementary strategies" for the company.
The first strategy that was suggested was that of "horizontal diversification and geographic expansion," and Rambourg believes that the company could take advantage of gain and benefits of the fast growth of some of its services such as Apple Pay and its reach. A second approach as suggested by Rambourg was for the company to add new services and applications in fields such as augmented reality which would then require enhancement and upgrade of hardware and ultimately excite users and consumers of iPhone. The third strategy as suggested by the analyst is for the company to indulge in "pure innovation" in new and developing technological areas such as autonomous driving, health, and augmented-reality headsets.
The price target of the Apple shares as also lowered by the bank to $200 from $205 and Rambourg in the note gave suggestions of an "undemanding valuation" but limited "immediate catalysts."
Compared to the average rise of 2 per cent in the technology heavy Dow Jones Industrial Average over the last one month, the shares of Apple have dropped by about 11 per cent.
One of the major outcomes of the note and suggestions of the HSBC analysts that emerged as the primary cause of the downgrade was the over dependence of Apple on just one product and its failure to create significant market inroads into the emerging market economies.
In the note, the HSBC analysts said: "Apple's iconic hardware unit growth is broadly over for now. Revenues are only supported by higher selling prices and by the development of services. Flat unit growth has hit Apple's share price and incidentally its key suppliers. What has made the success of Apple, a concentrated portfolio of highly desirable (and pricy) products is now facing the reality of market saturation."
The note also reported an in depth analysis of Apple about whether the company’s shares should typically trade at a higher earnings multiple just as the stocks of companies that produce and sell luxury goods. The research note further concluded that the shares of Apple not overtly expensive but should not deserve the higher multiple that is typically seen with share of luxury goods companies.

Christopher J. Mitchell

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