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Apple Down 3 Percent Monday

In midday trading, shares of Apple (NASDAQ: AAPL) are down 3.4 percent breaking the psychological $400 level.

Headlines are mixed on the stock Monday. Jefferies & Co.’s Peter Misek reiterated his hold rating but cut his price target to $405 from $420 after trimming fiscal year estimates based on lower production levels. According to Barron’s, he said,

While CQ2 builds are stable at 25M-30M (Jef shipment estimate: 25M), CQ3 build plans have been cut from 40M-45M to 25M-30M and CQ4 from 60M-65M to 50M-55M. We had recently noted that smartphone inventory levels at retail and carriers were elevated but were unsure which OEMs were most exposed. Our survey of several hundred Orange, Vodafone, and EE stores in the U.K. indicates that inventories are elevated for iPhones and the Samsung Galaxy 3. On the supply chain side, Jabil reported a weak quarter for its Apple-exposed segments and guided the main Apple segment flat Y/Y for the Aug Q. Our checks also indicate that Apple’s wafer starts at Samsung’s Austin fab have likely been cut and that memory module makers have recently been reallocating orders in Q3 away from Apple and toward emerging market players.

But BMO Capital Market Analyst Keith Bachman raised his price target from $435 to $450 saying that Apple’s fiscal Q3 will likely beat the street’s estimates.

We believe that the long-term trends of greater competition will pressure Apple’s growth and/or margins in handsets. However, more near term, we believe that Apple’s results will be above consensus expectations for the June quarter for revenue, margins, and EPS, as we mentioned in our June 17th note. We believe this September-quarter consensus revenue estimates look modestly too high, and December-quarter and FY14 revenue estimates also look high. However, near term, we think gross margins will increase q/q, helped by the fact that Apple took a material warranty charge in the March quarter, which negatively impacted margins by almost 100 basis points. While we think iPhone 4 price promotions could pressure margins in the June quarter, we still think margins will increase q/q net of the warranty expense accrual in the March quarter. We would expect the stock to positively respond to favorable margin variance near term.

Technically, the break below $400 is a key breakdown. The large scale reversal leaves Apple with very little technical support. If the stock cannot hold $400 at the close, it could be set to challenge the $387 low set in April.

Disclosure: At the time of this writing, the author was long Apple.

View a detailed chart of Apple here.


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