Apple Bulls See Long-Term Potential Despite Recent ‘Horror Show’

(Bloomberg) -- Apple Inc. analysts expect continued volatility as the company grapples with the prospect of slowing iPhone sales and tariffs against mobile devices made in China, but they also see an opportunity emerging after the biggest monthly decline for the stock in more than a decade.

Wedbush analyst Daniel Ives cut his price target to $275 from $310 on Wednesday, the latest investment bank to do so on iPhone demand concerns. However, he affirmed his outperform rating and wrote that Apple remains one of its “favorite tech names heading into 2019 despite the horror show over the last month seen out of Cupertino.”

He added that “while this sell off has been a painful one that is hard to stomach for tech investors and caused many of our peers to move to the sidelines on the name,” his long-term bullish thesis remains intact. In a note to clients he cited the company’s valuation as well as a “further monetization of its 750+ million active iPhone installed base through future upgrades and a $50 billion+ services revenue stream.”

The comments echoed a recent report from Morgan Stanley, which also touted Apple’s services business and argued that the recent decline had been overdone.

Apple shares have plunged almost 25 percent from a record high in early October, a slump that ended the company’s multiyear streak as the largest stock by market capitalization. The stock has dropped more than 20 percent thus far this month, putting it on track for its biggest monthly decline since September 2008, during the financial crisis. The shares rebounded 1.3 percent pre-market on Wednesday.

Bernstein analyst Toni Sacconaghi wrote that the sell-off was “the most abrupt in Apple’s history,” and suggested “a good amount of ‘bad news’ might already be priced in” to the shares.

“It is difficult to know with certainty where AAPL’s FY 19 EPS estimates could go, but we have stress tested our model, and find it difficult to see EPS declining below FY 18 levels or for iPhone ASPs to decline” year-over-year, he wrote, referring to average selling prices.

Despite that, Sacconaghi suggested that Apple shares may see further downside before recovering.

“Sell-side estimates have only been revised downwards by -0.8% so far, and history suggests that the stock is unlikely to inflect until estimates stop coming down,” he wrote to clients, affirming his market perform rating and $210 price target. That’s 21 percent above the stock’s last closing price.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editor responsible for this story: Catherine Larkin at clarkin4@bloomberg.net

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