Barclays has downgraded Apple (NASDAQ:AAPL) from Overweight to Equalweight on Thursday due to concerns about the maturing smartphone market. Barclays analyst Ben Reitzes, a longtime Apple bull, revealed the downgrade in a recently released note to investors.
“Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers — nor were we fully convinced that these products could move the needle like new categories did in the old days,” wrote Reitzes. “As a result, we believe it is time to step aside, given a maturing smart phone market.” However, despite the downgrade, Reitzes maintained a $570 price target on Apple shares.
Although CEO Tim Cook has repeatedly promised that Apple would unveil new products and new product categories this year, Reitzes does not believe that new products would offset the risks associated with a maturing smartphone market. “We believe Apple’s story is all about iPhones and ‘new categories’ seem to be designed to make the iPhone more useful — but don’t necessarily re-accelerate growth in the iPhone category to sustainable double-digit levels,” stated Reitzes. The Barclays analyst appeared to be referencing a recent report from MobiHealthNews that stated that Apple’s iWatch would be a peripheral device that relies on the iPhone for full functionality.
The analyst also wasn’t impressed by the widely-reported rumors of a sapphire-covered iPhone. Reitzes pointed out that Apple’s iPhone margins would actually be negatively impacted by the addition of “advanced new features” like “sapphire glass, curved glass, and new batteries.”
Reitzes also cited the history of large tech companies like Microsoft (NASDAQ:MSFT) as a reason for downgrading Apple. “We look at a valuation analogy versus Microsoft from 2000 to about 2010 and see no precedent that large-size tech companies simply start to broadly outperform again after a tough year or two if the law of large numbers is catching up to them and margins have peaked,” wrote the Barclays analyst. “As a result, there doesn’t seem to be anything wrong with saying shares could be range-bound as we move from product cycle to product cycle until we can see Apple creating entirely new markets in the cloud.”
Although Reitzes was skeptical that Apple’s shares could see significant gains without a revolutionary new product, he noted that, “If we were to see evidence that payments and/or new content deals enhance the Web services aspect of Apple versus Google (NASDAQ:GOOG) and others long-term, we may need to reassess this opinion.” Last month, the Wall Street Journal reported that Apple was developing a mobile payments service that could compete with rival services offered by companies like Google and eBay (NASDAQ:EBAY) subsidiary PayPal. Apple was down 1.42 percent, or $7.62, at $529.75 in midafternoon trading on Thursday.
Follow Nathanael on Twitter (@ArnoldEtan_WSCS)