UBS and Jeffries cut Apple price targets. Still say buy

UBS analysts Steven Milunovich cut his price target for Apple from $780 to $700 today, and that has the stock reeling. It was down to $512 the last I checked, a loss of 3.3% on the day. I have great respect for Milunovich as an analyst and followed him during the tech bubble days when he was at Merrill. He’s not an industry shill. The rationale for the cut comes from his supply chain check where his sources tell him that the iPhone 5 is not going to sell as well as the iPhone 4S and he has had to cut his Q1-Q3 2013 iPhone sales estimates.

Jeffries also cut Apple’s price target from $900 to $800 because of slowing growth. He says iPhone sales in developed markets will slow as the saturation point has been hit and therefore Apple needs to ramp up in emerging markets where there is more growth. The analyst for Jeffries, Peter Misek, also repeats the rumour that Apple will release a cut rate phone specifically for these markets. Both he and Milunovich still rate Apple a buy – Hence the high price targets.

I don’t think any of this should be a shocker given what I have been saying. I am bearish on Apple now, not just in terms of slowing growth and margin compression, but also in terms of valuation and stock price performance. These target cuts add downward momentum to Apple’s stock and make it very difficult for Apple to turn it around unless it can surprise with a great Q1. I do expect good earnings from Apple this quarter but Milunovich’s supply chain check does make me worry that Apple may even fall below estimates in this holiday season quarter.