Apple Inc. (NASDAQ:AAPL)’s long-term value has been heavily discussed over the last week following Carl Icahn’s announcement that he has taken a position on Apple Inc. (NASDAQ:AAPL) and that it is currently undervalued. He thinks that if the company rebuys stocks it could send prices soaring past $700. Amidst the speculation, Citi has released a valuation report setting their target for Apple at $430.

Apple

Five Risks To Apple’s Stock Price

There has been some concern about gadget fatigue, as Apple Inc. (NASDAQ:AAPL) rolls out new iPhone models every year or more, and people may start to feel like they are content with the phone they already have. Some contraction in the smartphone market has already been worked into Citi’s $430 target, but a stronger deceleration could hammer sales of the 5C and 5S.

Loss of market share

With Android phones and Microsoft’s Windows Phone gaining in popularity, Apple will need to fight to maintain its dominant position in the market. According to Citi’s Glen Yeung, “should Apple Inc. (NASDAQ:AAPL) fail to maintain its competitive advantage as an ecosystem leader and lose share precipitously, the stock price may fail to achieve our target price.”

Falling margins

Citi expects gross margins to be flat or slightly down, but there is a real chance that rising manufacturing costs could force margins down even further. There is also the possibility that with so many models on the market, if Apple Inc. (NASDAQ:AAPL) isn’t producing the right mix of iPhones and iPads it could have to make costly supply chain and inventory adjustments.

Extended price correction

Apple prices have been falling for the last three quarters and have only recently started to rebound. Citi expects that the impact of share price corrections will be similar to Apple Inc. (NASDAQ:AAPL)’s peers, but that correlation isn’t guaranteed to hold. The entire market has had a bump recently, and that might have simply been a pause in Apple’s overall downward correction.

Reduced carrier subsidies

One of the biggest threats to Apple Inc. (NASDAQ:AAPL)’s model for selling iPhones is that carriers are beginning to reject it. In the past carriers would pay for most or all of the phone, and then pass those costs onto the consumer through fees. The result has been poor customer relations and confusing contracts. Now carriers are experimenting with letting people pay full price for phones, but giving them clearer contracts that reflect actual use. This exposure could force Apple to lower its prices, damaging its profitability.