Why This Analyst Downgraded Apple Ahead of Good News

As Apple Inc. (NASDAQ: AAPL) moves forward in April, it gets ever closer to its next earnings report. However, ahead of this report Apple received its first analyst call in a while that was more bearish. It is interesting that this call would come at a time when Apple is also expected to increase its dividend.

Societe Generale cut Apple to Hold from Buy based on Apple nearing its $130 price target. Another concern is how Apple can replicate the success of its iPhone 6 model when it has another upgrade later this year. There is a concern that currency headwinds could cap its revenues. That is particularly the case in terms of European sales.

The $130 price target from Societe Generale implies upside of only 3.2% from current prices. Sometimes analysts can get away with saying “that is close enough for me.”

The general consensus from all other analysts puts the price target at $139.59, implying upside of 10.8%. However the highest estimate from analysts is at $180, which suggests upside of nearly 43%.

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Barron’s recently threw out a $160 Apple share price target, in part due to higher dividends and buybacks. A lot of the analyst calls being made now have to do with Apple’s dividend and buyback plans. Apple is relatively new to the game of paying dividends and buying back stock, but the consumer electronics giant has so much cash that it may have to boost its dividend payment and keep buying back stock whether it really wants to or not. Apple is still considered a cheap stock, but its dividend yield is a mere 1.5% — low for a company being added to the Dow Jones Industrial Average.

Investors should expect an announcement of a dividend hike with the earnings report in mid-April. Our projection is that the dividend will be raised from $0.47 per share to around $0.60 per share. It could of course be even higher, as this level gets the yield to almost 1.9%. A $2.40 annualized payout would compare to the consensus estimate of $8.61 per share for 2015, a payout ratio of about 28%, not counting the buybacks.

The iPhone 6 continues to be the current growth driver, as does growth in China. New initiatives are coming, like the Apple Watch and whatever TV or media plans it has.

Apple is expected to announce its fiscal second-quarter financial results on April 27. Thomson Reuters has consensus estimates for the second quarter of $2.13 in earnings per share on revenue of $55.57 billion.

Shares of Apple were relatively flat at $125.97 Wednesday, in a 52-week trading range of $73.05 to $133.60.

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