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Investors should sell Apple shares because fewer customers than expected will upgrade to the upcoming iPhone 7 and because of the tech giant's lack of success in launching new products away from smartphones, according to broker BGC, which lowered its rating to sell from hold.
"Our opinion [is] that Apple has peaked under the leadership of CEO Tim Cook, " BGC's Colin Gillis wrote in a note to clients Monday.
He added: "There is risk that the upgrade rate for the next iPhone may slow even more than the upgrade rate cycle of 6s. ... The dynamics of the next iPhone cycle may underwhelm even with the installed base of approximately 1 billion active devices. We would rather be too early on this call than too late."
Gillis lowered his Apple price target to $85 from $110, representing 14 percent downside from Friday's close. In Monday trading, the company's shares fell to their low of the day, losing more than 1 percent, as news of the downgrade broke.
The analyst estimates the iPhone will decline on a year-over-year basis for the third quarter in a row and will continue to suffer from a slowing smartphone market. He cited IDC data on global smartphone shipments in the first quarter of 2016 at roughly flat year over year as evidence of the tepid industry growth.
Gillis is disappointed with Apple's current management team that had five years to build new product categories during "the maturation of the smartphone market" and only launched the lackluster Apple Watch in that time frame.
He has "unease with management's positioning of the business for new revenue streams in the future, including desirable recurring revenue," the report said.
As a result of his concerns about Apple's near-term fundamentals, Gillis lowered his fiscal 2017 earnings per share estimate to $8.24 from $9.74, which is now lower than the $8.96 Wall Street consensus.
Apple, which is expected to release the new iPhone in September, is scheduled to report quarterly results Tuesday after the bell.
Gillis puts it most bluntly in the report here: "With expectations for the June quarter low, and consensus at the midpoint of guidance, it is possible that shares rally on the June quarter results — but when we ask ourselves 'Do we see Apple gaining or losing its next $100 billion of value?' The answer is losing."