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Tuesday, November 17, 2009, 11:55 am PT (02:55 pm ET)

Needham downgrades Apple stock on technicality

Needham & Company downgraded their assessment of Apple stock from a "strong buy" to "buy" rating Tuesday, as a result of the firm's own rules for ratings, but not a change in their positive outlook for the stock.

The rating change means little, as Needham & Company still has high hopes for AAPL stock and is recommending that investors buy, analyst Conor Irvine told AppleInsider.

"The fundamentals are in-tact and our model hasn't changed at all," he said. "It was pretty much just a technicality."

Needham announced the change Tuesday afternoon, when shares of AAPL were worth $206.64 at 2 p.m. during intraday trading. At that price, 15 percent growth would place the stock higher than the firm's price target of $235. It is Needham's own rules, the company explained in its note, that required Apple stock to be downgraded from "strong buy" to "buy."

"On September 15th, based on stronger than anticipated sales of the iPhone, we raised our Apple price target from $200 to $235," the note issued to investors said. "Apple’s share price is now less than 15% higher than our price target, which represents our (admittedly arbitrary) breakeven rule for assigning buy and strong buy ratings to stocks in the absence of any change in a company’s fundamentals. As a result, we are downgrading Apple to Buy from Strong Buy, and maintaining our $235 price target."

The firm noted that checks indicate that Apple's first fiscal quarter is on track to meet or exceed expectations of $1.77 earnings per share, even before the holiday buying season has begun. Needham said they intend to revisit their valuation model for Apple in January, when the Cupertino, Calif., company reports the results of its first financial quarter.

Irvine said that Needham had a choice between upping the price target for the stock, or lowering its rating from "strong buy" to "buy." The company's rule requires that there be 15 percent upside at a stock's trading price to qualify for a "strong buy" rating. And where Apple stock is currently trading does not warrant that ranking.

Needham & Company

Graphics via Needham & Company.


Needham's rules would have required the price target for AAPL to be increased to nearly $238, based on where the stock was trading Tuesday afternoon. But while Needham is reluctant raise its estimates higher, some have projected a much greater price or the stock.

UBS Investment Research's Maynard J. Um has predicted Apple will hit $280 in the next 12 months, and analyst Gene Munster with Piper Jaffray has a price target of $277 for Apple. In addition, analyst Mike Abramsky with RBC Capital Markets has forecast that AAPL will hit $275 in the next year.

Tremendous growth in recent years has caused the Mac maker's market value to swell to $180 Billion. But Apple's market cap would reach a whopping $250 billion as if its stock were to hit $280.