Michael Seto for Business Insider
Munster's price cut seems to be based on the belief that Apple will release a lower-priced iPhone which will cannibalize higher-priced iPhone sales.
He also believes Apple's March earnings, which come out next week, are going to be weak, and the guidance for June is going to be worse than expected.
A year ago at this time, he had a $910 price target on the stock. He's still "overweight" the stock. He thinks once Apple gets through the next three to six months, it's going to take off again based on new products.
Here are the key takeaways from his note. He calls this a 'worst case scenario' with the cheaper iPhone:
- For every three cheap iPhones sold, Apple sells one less high end phone. He thinks the cheap iPhone sells for $300.
- In calendar year 2014, he sees high end iPhone sales increasing by 6%. He thinks Apple sells 75 million low cost iPhones in 2014, taking 11% of the low end market.
- Margins decline slightly. Munster estimates "gross margin goes to 36.6% in CY14 vs. 38.6% in Dec-12. This assumes a $300 ASP, and a 30% gross margin for the cheaper iPhone vs. $620 ASP and a 55% gross margin for the high end iPhone."
- June guidance will be $34-$36 billion, compared to the street at $39.6 billion.
- The dividend will be increased to $14, up from $10.60. He doesn't expect an increase in buybacks. Debt is an option.
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