Pacific Crest: Investors Better Off Owning Alphabet, Citing Weak iPhone 2017 Sales

Apple saw Pacific Crest Securities downgrade its investment rating on the stock to sector weight from overweight, saying in a research note to clients that while Apple is expecting strong performance out of the iPhone 8 cycle, it’s not factoring in the chance that iPhone sales can decline.

According to a report in CNBC, citing the research, analyst Andy Hargreaves said clients would be better off investing in Alphabet stock, parent of Google, with money they earned by selling shares of Apple stock.

“We believe AAPL anticipates strong performance in the iPhone 8 cycle while providing relatively little weight to risks through the cycle or the potential for iPhone sales to decline in FY19,” Hargreaves wrote in a note to investors over the weekend, reported CNBC. The analyst pointed to gross margins, elasticity, supply issues and declines in iPhone sales after the iPhone 8 for the negative stance on the company.

“We recommend large-cap tech investors use proceeds from sales of AAPL to purchase GOOGL (Overweight, PT $1,100), which we believe retains an excellent risk/reward profile and more substantial upside potential than AAPL,” the analyst wrote.

The downgrade by the Wall Street firm comes as Apple is holding its developers conference — WWDC — this week. Rumors are that Apple will release a new mobile operating system, provide iPhone 8 updates and potentially even announced a home speaker type device that is controlled by Siri.

In addition to worrying about future risks, the Pacific Crest analyst said the iPhone 8 could be delayed until October. Apple typically rolls out new versions of the iPhone in September.

“Recent supply checks suggest iPhone 8 (OLED) may be delayed until October with a limited initial supply that ramps through F1Q. Consequently, we are shifting iPhone units out of FY17 into FY18, which, along with an increase to our iPhone 8 ASP estimate, drives our FY17 EPS estimate down to $8.86 and our FY18 EPS estimate up to $10.53,” wrote the analyst, according to CNBC.