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Wells Fargo maintains neutral outlook on Apple, says market expectations too high

Wells Fargo Securities continues to go against the grain with a neutral "market perform" rating on shares of Apple, forecasting that shares will trend lower in the face of high expectations on Wall Street.

Analyst Maynard Um raised his "valuation range" on AAPL stock Monday to between $100 and $110, below the company's $112.40 trading price as of last closing price. Though his estimates were revised higher, Um sees shares of Apple dropping due to what he called a "high sentiment bar."

Since Wells Fargo downgraded AAPL in Jan. 2014, shares have increased more than $30.

"Apple is coming up on tougher compares and, in particular, we are cautious on the lack of new large carrier additions in the December quarter, which has had at least one new large carrier addition in the past," Um wrote in a note to investors.

The analyst said he believes Apple will have to "materially beat" market expectations in order to move its stock upward. His own forecasts call for Apple to sell 67 million iPhones in the just-concluded December quarter, with a gross margin of 39.6 percent.

Um also expressed concern over Apple's next product cycle, particularly with regard to the low-end 16-gigabyte capacity for the iPhone and iPad. The analyst said that 16 gigabytes does not appear to be sufficient for modern devices, and raising the minimum storage to 32 gigabytes could affect average selling prices and margins.

Wells Fargo and Um originally downgraded AAPL stock to its "market perform" rating in January of 2014. Since Um made that proclamation, shares of Apple have grown more than $30 from a pre-split price of $79.02.

Um's concerns about Apple's gross margins make him stand out on Wall Street, where investor and analyst expectations have generally been very high in recent months. The company is set to report its fiscal 2015 first-quarter earnings Tuesday afternoon after markets close.