Apple (AAPL) stock is trading higher Friday even after financial services firm KeyBanc downgraded the Magnificent 7 stock to Underweight (equivalent to a Sell) from Standard Weight (equivalent to a Hold), with a price target of $200.
Apple has been on a roll in 2024, up 34% for the year to date, to make it one of the best-performing Dow Jones stocks. But KeyBanc analyst Brandon Nispel is concerned about iPhone 16 sales. He thinks customers will favor buying the new lower-priced iPhone SE model, which is expected to launch in early 2025, over the costlier iPhone 16, according to Barron's.
The iPhone 16 price ranges from $799 to $1,199, while the iPhone SE 4 is expected to cost around $499, by some estimates.
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Nispel cited a recent survey that found 59% of respondents said they were interested in upgrading to the iPhone 16, and of those likely or extremely likely to upgrade, 61% indicated interest in the iPhone SE.
"This shows the iPhone SE isn't incremental, and could possibly be cannibalistic to iPhone 16 sales," the analyst said, adding that a successful launch of the iPhone SE would lead to an increase in iPhone units sold but a decline in average selling prices.
Nispel's $200 price target represents a discount of about 14% to current levels.
Apple could do well in China's thriving smartphone market
On a positive note for Apple, smartphone shipments in China rose 3.2% year over year in the third quarter, marking its fourth consecutive quarter of expansion, according to the International Data Corporation's Worldwide Quarterly Mobile Phone Tracker.
Apple came in second for smartphone companies, driven by the launch of its new iPhone 16 series, and its artificial intelligence (AI) model Apple Intelligence is expected to drive future demand.
"A significant wave of device upgrades is propelling the sustained recovery of the Chinese smartphone market," IDC senior research analyst Arthur Guo said in a statement. "Despite ongoing economic challenges, consumers are highly motivated to purchase new smartphones after three years of pent-up demand."
Apple is still a Buy for most of Wall Street
The majority of Wall Street remains bullish toward the blue chip, suggesting investors shouldn't be too worried about KeyBanc's downgrade of one of Warren Buffett's favorite stocks.
According to S&P Global Market Intelligence, the average analyst target price for AAPL stock is $239.82, representing implied upside of over 3% from current levels. Additionally, the consensus recommendation is Buy.
Financial services firm CFRA is one of the more bullish outfits on AAPL stock with a Buy rating and $260 price target.
Looking ahead to Apple's upcoming earnings event, slated for after the close on Thursday, October 31, CFRA Research analyst Angelo Zino is expecting year-over-year services growth of 13%, "while anticipating more insights around the rollout of AI (initially only available in English), with international expansion to be a bigger story in calendar year 2025 and calendar year 2026."
Zino adds that "AAPL could refresh its Macs this fall, with internal M4 processors, while Wearables is set to return to growth given recent upgrades to the Watch and AirPods product lines."
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