We have downgraded Apple Inc. (AAPL) to Neutral from our previous Outperform rating. Our price target remains at $225, which represents a P/E multiple of 26.1x our fiscal 2010 earnings estimate, a premium to the S&P 500 and more accurately reflecting the current outlook.

Apple has experienced tremendous growth, driven by the success of its iPhone and increased Mac shipments. AAPL has undergone a total turnaround from a loss of $0.07 per share in 2001 to a profit of $6.29 per share in fiscal year 2009.

The company reported strong 2009 results with increased revenue and earnings growth despite the recession. The results beat the Zacks Consensus Estimate and the company’s own guidance. We expect the company to report stronger results in fiscal 2010.

AAPL is expected to introduce a new tablet device later this month with a shipping date in March, which could drive the fortunes of the company.

However, the smartphone market is heating up and AAPL faces tough competition from Nokia (NOK), Palm Inc. (PALM) and Research In Motion (RIMM). While Apple has various positive attributes, we believe that the company’s strong growth is already priced into its shares, although momentum could drive the shares slightly higher. Thus we advise stockholders to hold AAPL shares.

Recently, Nokia filed a complaint against Apple with the Federal District Court in Delaware, alleging that Apple’s legendary iPhone has violated as many as ten Nokia patents from 2007.

Additionally, while AAPL is strongest at the high-end of the market, Nokia has a global reach and delivers a wider range of handsets, targeting both low and high-end consumers. We expect the market for high-end smartphones to slow more dramatically, while lower priced devices continue to grow. This is likely to hurt AAPL.

Zacks Investment Research

1. (AAPL) Apple Countersues NokiaApple Inc. (AAPL) has filed a countersuit in a U.S. District Court in Delaware against...
2. (AAPL) Apple Beats Nokia in SmartphonesAccording to a recent Strategy Analytics research report, Apple Inc. (AAPL) surpassed Nokia (NOK) by...
3. ($AAPL) Apple Upgraded to OutperformWe are upgrading Apple Inc. (AAPL) to Outperform from Neutral, as we believe Apple shares have further...
4. (AAPL) Apple Reports 2nd Highest Growth EverFourth-Quarter Results Beat Apple Inc. (AAPL) fourth-quarter beat the Zacks Consensus Estimate of $1.43 in...
5. (AAPL) Price Target on Apple Gets RaisedApple Inc. (AAPL) is set to release its earnings on Oct. 19. We expect the...
6. (AAPL) Apple Expected to Debut New iPodsApple Inc. (AAPL) is expected to unveil a new line up of iPod portable music...

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