Apple's high valuations prompt downgrade by KeyBanc, despite year-to-date rally

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Apple's high valuations prompt downgrade by KeyBanc, despite year-to-date rally
Credit: © Reuters.

Apple Inc (NASDAQ: AAPL ). has been downgraded to sector weight by KeyBanc analysts, following concerns over high valuations and a likely slump in U.S. iPhone sales. This decision comes despite Apple's stock rallying 32.7% year-to-date, significantly outperforming the Nasdaq Composite COMP's 24.8% climb and the Dow's 0.4% dip, and even though Apple, with a market cap of $2.7 trillion, is a prominent player in the Technology Hardware, Storage & Peripherals industry, according to InvestingPro Tips.

The analysts expressed their skepticism about the Wall Street consensus of international market growth for Apple, pointing to stagnant user growth. They also cited the disappointing results of Apple’s fiscal fourth quarter, weak credit/debit card spending data, and soft U.S. carrier sales as reasons for the downgrade.

The company's stock trades at peak multiples of enterprise value versus operating profitability and free cash flow, a significant premium to the Nasdaq . The analysts warned investors off Apple Inc., suggesting that the stock's 0.9% premarket plunge on Wednesday could signal a fifth weekly drop if it closes under $171.21 on Friday. This is despite the fact that Apple has a P/E ratio of 28.74 and an adjusted P/E ratio for LTM2023.Q3 of 29.05, as per InvestingPro data.

After maintaining an overweight rating for two years, the analysts' downgrade reflects growing investor concern over Apple's high valuation and potential sales slump in the U.S. market. Yet, Apple's strong earnings have allowed it to continue dividend payments for 12 consecutive years, and the company has even raised its dividend for 11 consecutive years, as highlighted by InvestingPro Tips. This, along with the fact that Apple operates with a moderate level of debt and its cash flows can sufficiently cover interest payments, could be reassuring for investors.

For those interested in more insights like these, there are 17 additional tips available on Apple at InvestingPro.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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