Why More and More Analysts May Downgrade Apple Estimates Into 2016

Apple Inc. (NASDAQ: AAPL) is still the darling of Wall Street and Main Street. This company has been able to enthrall consumers and the media with its products, and now it is the largest company in the world by market cap and profitability. Apple’s greatness is not being challenged, but investors are starting to wake up to the notion that they just might have to accept some more realistic growth levels for 2016 and beyond.

24/7 Wall St. has found it impossible to ignore the drop in Apple’s stock in December. Though down over 1% so far in 2015, it is down over 4% in the past week and down over 9% in the past month. Most investors expect that each December is supposed to come with a Santa stock market rally. Well, it turns out that analysts have been tempering expectations ahead, and it is becoming more evident that many of those massive bullish price targets might need to come down going into 2016.

A lot of things happened in 2015 for Apple. The launch of the Apple Watch was more of a niche product, and the new refreshes for the iPad have yet to materially work into big gains in sales. Still, the iPhone 6 carryover and the iPhone 6s refresh have been huge for Apple. Streaming music has yet to materialize into a massive boost, and the verdict is out for Apple TV.

Shortly before Christmas, Apple shares were trading at roughly $107.00. This is against a 52-week range of $92.00 to $134.54. What really stands out here is that Apple’s consensus analyst price target is all the way up at $148.98 at this time. Sure, we are talking about Apple, but this just still feels too high.

When analysts give a new upside price target with their Buy and Outperform ratings, investors generally can expect implied upside of 8% to 15%. For the mighty Apple, maybe that would be 20% or as much as 25% because it is Apple and being cautious on Apple just isn’t cool to the fanboys. Still, the consensus price target of $148.98 would imply just over 40% in upside for Apple in 2016, if you add in the 1.9% dividend yield.

Calling for 40% upside is usually too much for new analyst Buy and Outperform ratings in very well-established stocks. If we pretend that Apple shares were back up at $120 or higher, then the consensus price target is still almost 25% higher, before considering the dividend.

24/7 Wall St. has gone over some of the more tempering analyst calls of late, and we have covered some of the more positive calls to keep a better balance here. Very few outright analyst downgrades have been seen on the formal ratings. That isn’t true on analyst target prices and iPhone shipment/sales estimates. After all, there is no assurance that analysts will lower their price targets on Apple.

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