Wall Street Slashes Apple Targets After Sales Forecast Cut
(Bloomberg) -- Analysts on Wall Street lowered their share price targets for Apple Inc. after the technology titan cut its revenue outlook for the first time in almost two decades.
At least six firms reduced their share price forecasts for the iPhone maker by more than 15 percent after Chief Executive Officer Tim Cook said Wednesday that the company expects sales of about $84 billion in the quarter ended Dec. 29, down from earlier estimates of $89 billion to $93 billion. The new estimate would mean Apple is reporting a holiday quarter slowdown for the first time since Cook became CEO in 2011.
KeyBanc Capital Markets was less optimistic after the forecast cut, noting that the company is facing large risks around its pricing for iPhones and monetization of the App Store. Others, including Royal Bank of Canada, remained bullish on the stock, noting that it is getting closer to attractive valuations and that non-iPhone businesses such as Apple Watches, AirPods and services like Apple Music are still growing strongly.
The current average target for Apple stock stands at about $200, compared with an average of nearly $217 at the end of 2018, according to Bloomberg data.
Apple shares plunged as much as 9.6 percent to $142.81 as of 10:05 a.m. in New York for its biggest intraday decline since August 2015. Suppliers around the world, including Hon Hai Precision Industry Co. and Taiwan Semiconductor Manufacturing Co. in Asia and Broadcom Inc., Qorvo Inc. and Skyworks Solutions Inc. in the U.S. followed with declines. At current levels, Apple has dropped nearly 40 percent from its most recent record, in October.
Here’s what analysts are saying about the results:
Goldman Sachs, Rod Hall
“Beyond China, we don’t see strong evidence of a consumer slowdown heading into 2019 but we just flag to investors that we believe Apple’s replacement rates are likely much more sensitive to the macro now that the company is approaching maximum market penetration for the iPhone.”
Hall has a neutral rating on the stock and cuts price target to $140 from $182 as he sees potential for further downside to full-year numbers depending on the trajectory of Chinese demand in early 2019. The new target is the lowest on the Street, according to Bloomberg data.
He also reduces his full-year 2019 revenue estimate by 6 percent to $253 billion and earnings per share by around 10 percent to $11.66.
Piper Jaffray, Michael J. Olson
“The lowered expectations are largely due to weaker than anticipated iPhone sales in Greater China, as well as several emerging markets.”
Olson says “silver lining” is that non-iPhone revenue accelerated in the quarter, including record revenue from Services and Mac.
Olson has an overweight rating on the stock and cut its target price to $187 from $222. Olson also lowers full-year 2019 and 2020 estimated revenue by 6 percent and 4 percent respectively.
RBC, Amit Daryanani
“While this is clearly disappointing, investors were bracing for a disappointing print.”
The stock is getting closer to trough valuation support as its trading below 10 times forward earnings and could see downside support around $120, Daryanani said in a report. In addition, the services business continued to “outperform expectations” and “wearables also posted very strong growth.”
Daryanani has an outperform rating on the stock and lowered its price target to $185 from $220.
BTIG, Walter Piecyk
“0% revenue growth is our new expectation for fiscal 2019, but we believe Apple can return to revenue growth in the June quarter.”
“The huge miss in iPhone was offset by upside to other segments.”
Piecyk kept a buy rating on the stock but trimmed his price target to $197 from $235. He cut the fiscal year’s earnings per share estimate by $1.30 to $12.34 but maintained that the share repurchase program could help achieve EPS growth of 4 percent. He estimated that Apple would buy back 503 million shares this calendar year.
KeyBanc, Andy Hargreaves
“Aggressive price increases and limited functional differentiation in new models are driving elongated holding periods and trade down activity across several geographies. We see little to change this in the medium term, which suggests a likelihood for soft iPhone results to persist.”
“We continue to see significant risks to iPhone demand and services revenue growth, which would likely need to become more fully factored into the multiple to prompt a more positive rating.”
Hargreaves kept a sector weight rating on the stock with no price target and lowered his 2019 revenue estimate to $269 billion from $277 billion. He said expected software and services revenue of around $10.8 billion was below estimates and reflected the “lower-than-expected App Store monetization due to limited new games in China and broader market saturation.”
Separately, semiconductor analysts John Vinh and Michael Lin lowered estimates on Apple suppliers including Broadcom Inc., Qorvo Inc., Skyworks Solutions Inc. and Cirrus Logic Inc.
Loup Ventures, Gene Munster
“This challenging quarter accelerates the change in mindset from iPhone product cycles to Apple as a service.”
“We don’t see any sustainable shifts in market share, so iPhone owners will remain in the ecosystem, and eventually upgrade.”
“Tough quarters will come and the team needs to rise to the occasion,” he wrote in a note. “Cook’s commentary on investor expectations, Apple’s talent, and its ability to innovate are spot on -- a battle cry for the company and a sign of strong leadership.”
Morgan Stanley, Katy Huberty
“While we view the after hours trading price of $146/share as an attractive entry point long-term in light of our believe that new Services and Wearables can deliver more consistent EPS growth long-term,, we see shares as range bound until investors get more visibility into the March quarter on January 29th when Apple plans to report December quarter earnings.”
“The larger than market decline in iPhone units will likely contribute to investor concerns that Apple may be losing share. However, our data suggests Apple took considerable share of China’s smartphone user base through November.”
Huberty maintained an overweight rating on the stock, cutting the price target to $211 from $236.
Bank of America Merrill Lynch, Wamsi Mohan
“Although the trade tensions with China could ease in 1H19, the broader demand weakness and slower upgrade cycles are likely to push units much lower in F19.”
“Our downgrade late last year was predicated on a weaker China but demand seems to have deteriorated materially over the past two months.”
Mohan kept a neutral rating on the stock with a price target of $195. He said the street is likely to continue revising estimates downwards, which will pressure the stock in the near-term. The bank’s semiconductor analysts led by Vivek Arya lowered the earnings estimates and price targets of Skyworks Solutions and Qorvo.
Citi, Jim Suva
“We were surprised about the magnitude of the miss and the negative impact of China demand for iPhones.”
Nomura Instinet, Jeffrey Kvaal
“We believe the weakness was primarily in the new Xs/Xr models. The gross margin should reach 38% despite lower iPhone volumes.”
“The bright spots are that weak iPhone demand seems partially cyclical, other units are faring well, and the installed base is rising.”
Kvaal reiterated a neutral rating on Apple shares and lowered his price target by $10 to $175.
Bernstein, Toni Sacconaghi
“While no one is likely to be surprised by Apple’s December quarter miss, the magnitude of the fall-off in iPhones (14% in revenue terms) is likely worse than most expected.”
Keeps market perform rating but slashes target to $160 from $210.
The company’s installed base growth “appeared to decelerate meaningfully” in the fourth quarter. Apple “doesn’t work until estimates bottom, and we see some risk to FY Q2 guidance, suggesting that investors may want to wait to build positions.”
BMO Capital Markets, Tim Long
“We have been cautious surrounding the newly launched iPhone’s ability to drive an upgrade cycle, particularly in China, and December quarter results are worse than we would have expected.”
Cuts price target to $153 from $213 and affirms market perform rating. Will “look for stability in the iPhone business before becoming positive.”
JPMorgan, Samik Chatterjee
“Apple’s iPhone shipment volumes continued to be challenged by the worsening macro weakness in emerging markets (particularly China), and by elongating replacement cycles in developed markets.”
Keeps overweight rating while lowering target to $228 from $266.
Canaccord Genuity, T. Michael Walkley
Target lowered to $190 from $225, but buy rating maintained.
“Despite slowing iPhone sales, we still anticipate Apple will continue to grow its install base and believe the company’s ecosystem will contribute to ongoing growth, particularly for higher-margin Services and Other Products.”
UBS, Timothy Arcuri
While iPhone demand is weak, the firm sees the ecosystem as “sticky.”
“Apple could garner a higher multiple once investors start looking beyond the iPhone weakness and services margin disclosure shed light on recurring profits.”
UBS has a buy rating, but lowered its target to $180 from $210.
©2019 Bloomberg L.P.