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Analyst explains why he’s 'bullish on Apple at this point'

Apple (AAPL) may no longer be the stock market’s trillion-dollar darling, but some analysts think a rebound is in sight.

Apple’s stock has declined about 20% from its all-time high after the company reported disappointing quarterly results and announced it would no longer report iPhone unit sales, suggesting tepid demand for the company’s most important product. Apple’s shares have fallen by more than 10% since reporting earnings on November 1 and closed at $186.80 per share Wednesday.

“I think that Apple will find a technical bounce around these levels,” Ian King, senior research analyst for Banyan Hill, said on Yahoo Finance’s Market Movers Thursday. “If you look back to where Apple rallied from before it became a trillion-dollar stock, it was right here around $185.”

“I’m bullish on Apple at this point,” he added.

King’s outlook diverges from many others on Wall Street who have soured on Apple in the weeks following earnings results. UBS cut its price target on Apple shares to $225 from $240, and Guggenheim analyst Robert Cihra downgraded Apple shares to Neutral from Buy and removed his price target on the stock.

Apple’s stock currently has 27 Buy ratings, 20 Holds and two Sells, according to Bloomberg data.

Pared-back guidance from some of Apple’s suppliers have fueled concern about demand for Apple’s key devices. Most recently, Austrian 3D-imaging supplier AMS AG cut its guidance Wednesday, citing “recent demand changes from a major consumer customer” – implying Apple. This follows similar slashes in quarterly forecasts from suppliers including Qorvo (QRVO), Lumentum Holdings (LITE) and Skyworks Solutions (SWSK), the latter of which specifically cited weakness in the premium smartphone market.

But Wall Street may be overreacting to these supply chain revisions, Morgan Stanley’s Katy Huberty wrote in a note Thursday.

“The 8.5% decline in Apple shares following Lumentum’s and Qorvo’s negative pre-announcements this week suggests investors remain narrowly focused on units, despite the increasing value of Apple Services,” Huberty said.

Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New York. REUTERS/Lucas Jackson/File Photo

Apple reported that revenue in its Services segment – which includes divisions including the Apple Store, Apple Music Subscriptions and iCloud storage – reached an all-time high of $10 billion in its fiscal fourth-quarter of 2018. This represented a 27% increase over last year. The company said that Apple Pay, a component of its Services segment, had overtaken PayPal in mobile transactions for the quarter.

“As the smartphone market matures, Services takes the growth baton from Devices which ultimately results in more stable growth and higher margins at Apple,” Huberty said.

Huberty added that Apple’s Services growth will also make the company more resilient in the face of a recession. Looking back between 2009 and 2010, scaled internet companies including Google and Netflix saw growth decelerate, but didn’t decline, she noted.

“With Services and a committed buyback fueling the majority of EPS growth, we believe the company is better positioned to weather an economic slowdown relative to Apple’s iPhone dependent growth history” Huberty said.

Apple reported on November 1 that it anticipates total revenue for the fiscal first quarter of 2019 to range between $89 billion to $93 billion, falling slightly below consensus estimates of $93.02 billion.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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