Barclays Downgrades Apple, Says It's the New Microsoft

Barclays Downgrades Apple, Says It's the New Microsoft

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Barclays has downgraded Apple to Equalweight maintaining its $570 price target. Analyst Ben Reitzes doesn't see any reason for the company to trade outside a tight range.

"Frankly, we just couldn’t quite bring ourselves to use smart watches or TVs as reasons to raise numbers – nor were we fully convinced that these products could move the needle like new categories did in the old days," says Reitzes. "As a result, we believe it is time to step aside, given a maturing smart phone market."

Devices like the rumored iWatch are seen as making the iPhone more useful; rather than new categories in themselves.

"We believe Apple’s story is all about iPhones and 'new categories' seem to be designed to make the iPhone more useful – but don’t necessarily re-accelerate growth in the iPhone category to sustainable double-digit levels."

Finally, Reitzes likens Apple to Microsoft.

"We look at a valuation analogy vs. Microsoft from 2000 to about 2010 and see no precedent that large-size tech companies simply start to broadly outperform again after a tough year or two if the law of large numbers is catching up to them and margins have peaked."

Reitzes observed the following:
● Microsoft's all-time high market cap of $620 billion was hit in 1999, becoming the clear winner in the PC/Internet revolution. Apple beat the most-valuable company record in August 2012, which shares rose above $700 following the launch of iPhone 5. Apple's market cap hit a peak of $650, making it the mobility revolution winner;
● Investors have "re-rated" the companies given ebbing expectations that each company will have a "next big thing" product in the pipeline. "Apple now trades at 12.7x consensus 2014 estimates – down from its P/E of 15.9x in October 2012. Microsoft traded around 20x in 2004 after a strong rebound in 2003, but its multiple has settled in the mid-teens since that time;"
● Both companies peak market valuation coincided with a high point in gross margins; and
● Both Apple and Microsoft eventually gave into market pressure for a more shareholder-friendly capital allocation; Microsoft issued dividends while Apple gave the nod to dividends and buybacks. Both efforts didn't lead to a "resurgence" in share price, Reitzes noted.

The analyst suggests that Apple might need to set up its Research & Development to keep pace.

"Apple invests the smallest amount in R&D and also maintains one of the leanest opex structures. While revenue per employee is quite high – at over $2 million it is by a wide margin the highest in the group – growth seems stalled compared to Amazon, Google and Facebook. We would point to the lack of real new products of late as the reason for the growth differential – and that may be something that Apple may have to spend to fix."

[via SAI] [via SI]

Barclays Downgrades Apple, Says It's the New Microsoft

Curtixman - February 21, 2014 at 1:03am
It takes analysts two and a half years to know what we on the forums have been saying all along. Apple has climaxed. They were/are kings of the mobile revolution but their stock won't do much one direction or the other for years.
K - February 21, 2014 at 1:27am
Well said. Microsucks took the most used to yet wanted things people likes and threw it done the toilet since windows 8, but apple still has the same good look people love.
Nat - February 20, 2014 at 11:11pm
Uh how, look how creative macs are, look how light, durable, faster, and less malware it targeted toward them. Did microsuck made a light up keyboard for laptops, a light up logo for them either? What about the Magic Mouse and trackpad, is microsuck like that, to all this, no. How are they the same if two different companies make things their way, look how windows 8 gets hate and how many users are on new os' of both companies, compared to both, windows has 5% of many using it! apple users are 35% of many. How is any of this the sam
Nat - February 20, 2014 at 11:12pm
Jerry Ferrera - February 20, 2014 at 7:49pm
They are the only two big computer companies out there. While Barclays is some crappy financial company they know nothing about technology. Microsoft and Apple know what's best for computers and no matter what consumers will always be engaged with computers. It's not like they'll say oh since apple did this i'm going to stop using computers or something.
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