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UBS downgraded Apple shares to neutral from buy late Monday, saying iPhone demand is likely to remain under pressure despite growth in emerging markets. Apple shares closed Monday at a record high of $183.79. The stock has gained more than 41% since the start of the year. “At 29x our [next 12 months] EPS forecast of $6.22, a one-year high, and a ~50% premium to the S & P 500, a multi-year high, we do not believe Apple shares offer a compelling risk/reward particularly in light of soft iPhone, PC, and App Store fundamentals over the next 6-12 months,” analyst David Vogt wrote in a research note. Vogt increased his price target to $190, but said the potential shareholder return doesn’t justify a buy rating, especially given its “softer fundamentals.” The analyst expects to see iPhone unit growth fall 1% to 2% in the second half of this year. Meanwhile, Mac revenue could drop between 3% and 5%. Apple has seen recent strength in iPhone sales in emerging markets, but the size of the total addressable market outside the U.S., China and Europe is not large enough to drive iPhone growth at a mid-single digit pace on a sustainable basis, according to Vogt. Meanwhile, surveys done by UBS suggest that consumers seem less likely to buy a new iPhone in the next 12 months. Although the level of U.S. consumers is about where it was six months ago, fewer consumers in the U.K., China and Japan, are planning to buy a new iPhone. The firm added that it is also unlikely that Apple’s services or App Store growth will “materially accelerate in the near-term.”
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