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Why Credit Suisse’s ‘iPhone Refresh’ Advice to Apple Makes Sense

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Apr. 11 2019, Published 1:01 p.m. ET

Apple stock

Apple (AAPL) stock began 2019 with a massive sell-off on the second trading day of the year due to a cut in its fiscal 2019 first-quarter guidance. Nonetheless, the stock saw a sharp recovery later in the quarter and ended up with a 20.4% gain.

Investors’ high expectations for the company’s Services segment and their expectations of a turnaround in its iPhone sales helped its stock rise. With this, AAPL started its second quarter on a solid note. It’s seen a 5.6% rise so far as of April 10 compared to the 1.9% and 3.0% rises in the S&P 500 Index and the NASDAQ Composite Index (QQQ), respectively.

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Credit Suisse starts Apple coverage

According to a CNBC report, Credit Suisse analyst Matt Cabral recently started coverage on the iPhone maker with a “neutral” rating and a price target of $209, reflecting a potential upside of 4.2% from its April 10 closing price of $200.62.

‘iPhone refresh’ advice

Credit Suisse cited Apple’s iPhone troubles to justify its “neutral” rating on Apple stock and made a special mention of declining iPhone sales in the Chinese market. Cabral wrote in a note to clients, “Beyond macro conditions, we see deeper structural challenges in China and do not expect a meaningful turnaround without a major iPhone refresh, which is unlikely until 5G in CY20.”

The analyst also didn’t seem impressed by Apple’s recently announced video streaming and news subscription services, which it revealed on March 25. Cabral said, “We recognize the potential in the shift to services, but believe it will take time for that view to play out.”

Why the advice makes sense

In the first quarter of fiscal 2019, 69.2% of Apple’s total revenue came from its iPhone sales. It will be difficult for any other segment or product to more than offset the effects of consistent iPhone sales declines. Therefore, we believe that the sooner Apple puts its complete focus on refreshing the iPhone—as advised by Credit Suisse—the better the situation will be for the company.

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