First, PC unit growth is decelerating and the remaining source of growth is increasingly in the sub-$1,000 market where Apple does not play. Second, even in the best of scenarios, Apple’s earnings per share growth will decelerate meaningfully from June quarter levels. A combination of tough compares (with the previous years figures) and investments in
iPhone growth drive our December quarter earnings per share to a decline of 8 percent year over year, down from +29 percent growth June.
Apple fell as low as $105.77 a share in intraday trading, down substantially from its close of $128.24 on Friday. Apple’s shares sold off sharply after Morgan Stanley and RBC Capital Markets downgraded the stock.
In a worsening consumer spending environment we are downgrading from outperform to sector perform on: 1) reduced visibility growth, margins. 2) elevated risks to valuation.
Morgan added that it expects Apple to offer a more conservative guide to Wall Street and investors for the three-month period ending in December.
Morgan Stanley not only revised its recommendation for the stock, but also lowered its fiscal 2009 earnings estimate to $5.47 a share from $5.91 a share.
In listing its reasons for its revisions, Morgan Stanley said in a research note:
Apple’s shares fell 17.5 percent in early trading Monday, as two noted brokerage firms scaled back their recommendations to a “hold” from a “buy.”
RBC noted in its report that its September data showed the number of those intending to purchase a
Mac laptop within the next 90 days has dropped to 29 percent, compared with 34 percent in August, and those expecting to purchase a Mac desktop fell to 26 percent from 30 percent in the same period.
RBC Capital, meanwhile, downgraded Apple’s stock based on “elevated risks” from a slowdown in consumer spending.
According to RBC’s research note: