Cowen Downgrades Apple Inc. (AAPL), Cites China Struggles

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Shares of Apple are down -7% in premarket trading Wednesday after poor earnings led Cowen analysts to downgrade the stock.  During Apple’s third quarter 2015, Apple reported earnings per share of $1.85 on revenue of $49.6 billion. Analysts were forecasting Apple to post earnings per share of $1.81 on $49.43 billion.  While Apple was still able to beat analyst forecasts, this quarter represents the thinnest earnings beat since 2013. While the iPhone 6 appeared to be a success out of the gate, iPhone unit sales came just above estimates and were deemed lackluster. Cowen downgraded Apple from “outperform” rating to “market perform”.


China slowdown puts a damper on US corporation growth in the region

Cowen analysts detailed that “while management commentary sought to re-assure, iPhone units were light even adjusting for channel inventory.  Normally, this would not concern us, but evidence of a widespread demand reset from China is mounting”.  Cowen analysts even detail that a slowing China is a headache for other US corporations such as auto industry, technology, etc.  Cowen reminds us that a lot of Apple Inc. (NASDAQ:AAPL)’s bullish prospects had to do with market potential in China and with the stock market tanking and a clear economic dysfunction, “we are convinced Apple has entered a transition period where risk/reward no longer supports an Outperform rating.”  By this standard, Cowen is suggesting that China’s economic uncertainty will likely continue to hurt Apple’s bottom line moving forward and due to Apple’s appeal has been tied to China’s success, Cowen suggests that Apple could be returning to reality.

Cook touts Apple iPhone 6 success amid disappointing sales

Apple Inc. (NASDAQ:AAPL) was estimated in selling 47.25 million iPhones during the quarter, but results barely were able to scrap by at 47.5 million units sold.  This is down from 61.17 million units sold during Apple’s fiscal second quarter.  “We sold more units than we thought we would.  We did exceptionally well in any way that you look at it,” detailed Apple CEO Tim Cook.  Additionally, Cook details that only 27% of iPhone users have chosen to upgrade to the iPhone 6, which represents a good chunk of its customer base that could be looking to upgrade to latest model.

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Image via: Business Insider

Overall, Apple Inc. (NASDAQ:AAPL) certainly stumbled during its latest quarter thanks to a softening China and soft customer phone upgrades.  While Apple was able to generally beat estimates across the board, analysts are concerned because the earnings beat was very miniscule and Cowen certainly did not like the results, which they believe is the start of a series of disappointing earnings releases from Apple. Overall, Apple Inc. (NASDAQ:AAPL) is still in good shape and the global economy is looking rather timid right now, which is going to weigh on earnings and economic growth.  The long term, however, still remains bright for Apple.

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