KeyBanc analysts downgraded Apple (NASDAQ:AAPL) shares to Sector Weight from Overweight.

As a result, Apple stock traded 1.2% lower in early New York trading on Wednesday.

The downgrade call on Apple stock is based on several factors:

1. Valuation: AAPL is currently trading at near-all-time high multiples and carries a significant premium compared to historical levels and the Nasdaq index. This valuation level raises concerns, the analysts write;
2. U.S. Sales Challenges: There are expectations that U.S. sales of Apple products may face difficulties. This assessment is based on KeyBanc’s data, predictions about U.S. upgrade rates, and initial iPhone promotions by U.S. carriers, which are seen as restrictive;
3. International Growth Expectations: The anticipation of a rapid acceleration in international growth may be overly optimistic, according to the analysis; and
4. Full Estimates: From both top-line and bottom-line perspectives, it is believed that Apple’s estimates appear to be fully valued.
“We believe in order to justify upside to AAPL shares, peak valuations need to be applied or its growth profile needs to inflect higher,” the analysts said in a client note.

Moreover, key regions like the Americas are likely to see “soft growth.”

“~37% of AAPL’s revenue comes from the U.S., making the U.S. APPL’s largest geographic segment. We expect the U.S. to experience its fourth consecutive y/y decline in F4Q23, potentially carrying into F1Q24,” they added.

KeyBanc projects FY24 revenue growth of 3.5%, while the Street consensus sits at >6%.

“We also expect margins to improve at a slower pace in the next couple of years given: 1) product introduction and mix shift; 2) incremental hardware and services contribution margin pressure; 3) higher R&D and S&M for new product launches; and 4) potential for higher capex,” the analysts concluded.