Guggenheim downgrades Apple, drops $245 price target

Analyst Robert Cihra has lost faith in “growth via ASPs,” won’t hazard a guess on where the stock is headed.

From a note to clients that landed on my desktop Wednesday morning:

Key Message: Whereas a year ago AAPL looked like a table-pounder when iPhone units were weak but about to be more than offset by a big jump in ASPs (+17%Y/Y in FY18), which ultimately drove Apple’s best iPhone revenue growth in 3 years, we rather now find that setup flipped with “growth via ASPs” widely known but just as those ASPs start to anniversary. Over the past 10 years, Apple’s iPhone ASP has increased a dramatic + $220, or 40%, reflecting its growing value to both consumer and business markets, but nearly HALF of all that just came in FY18 alone, making a period of digestion now likely…

With the iPhone screen an incredibly valuable piece of real estate, we continue to forecast Apple growing its Services revs +19%Y/Y in FY19E… But while that model continues to grow and helps support the stock’s P/E, we still consider Apple a “product” company. Ever since Apple launched its iPhone Upgrade Program 3 years ago, we have thought it could eventually migrate to selling its entire product+services portfolio as some sort of “subscription” to loyal users who upgrade anyway (e.g., $1K/year to be part of the Apple ecosystem, with a fresh iPhone, iPad, Mac, etc.), but have not seen it move that way.

Downgrades rating to Neutral from Buy. Removes $245 price target.

Cue Cihra’s revenue growth bar chart:

My take: He still considers Apple a “product company.”