Apple falls after Bank of America downgrades the iPhone maker on indications of a slowdown in consumer spending
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- Apple shares were downgraded to neutral from buy at Bank of America on Thursday, contributing to a nearly 5% drop in the iPhone maker's shares.
- The investment bank sees near-term risk to earnings from a weaker iPhone 14 cycle and a potential slowdown in services.
- BofA's fiscal 2023 earnings and revenue projections are below Wall Street's consensus view.
Apple was cut to a neutral rating from buy at Bank of America, contributing to a nearly 5% drop in the iPhone maker's shares during Thursday's session.
The investment bank also lowered its price objective by about 14% to $160 a share from $185.
"We view the slowdown in services and relatively lackluster iPhone lead times as indicators that consumer spending will slow," said analysts led by Wamsi Mohan said in a research note.
The shares fell by as much as 4.9% to $142.48, the lowest price since mid-July.
The stock was moving toward a second straight decline, with Wednesday's fall set off after Bloomberg reported Apple nixed plans to increase production of its new iPhone 14 this year because an anticipated demand surge hadn't taken shape.
Apple shares year-to-date had dropped roughly 16% through Wednesday's session. The shares, however, have been perceived as a relative safe haven compared with the 29% slide in the S&P 500 Information Technology sector, said BofA.
BofA said risks to that outperformance over the next year include a weaker iPhone 14 cycle that points to softness in consumer spending, a weaker near-term services trajectory where App Store and licensing via payments from Google can decelerate, and pressure from a stronger dollar.
"Although Apple's long-term prospects remain favorable, we see incremental risk to earnings and valuation over the near term," wrote Mohan.
The bank's fiscal 2023 per-share earnings projection of $5.87 and revenue view of $379 billion were well below the consensus estimate of $6.46 per share and $412 billion, respectively.
It said upside risks to its ratings downgrade include stronger Pro iPhones sales that offset weaker mainstream iPhone sales and new services like advertising that can more than offset a deceleration in other areas.