With COVID-19 supply constraints in the rear-view mirror, Apple Inc. is, in a way, just like any other company.
That means that instead of worrying about when factories in China will be back up to speed, investors can shift their focus to contemplating the extent to which economic pressures will take their toll on Apple’s
AAPL,
business.
Economic concerns took a bit of a backseat when Wall Street was thinking about Apple’s December quarter, as the company warned in November that iPhone production issues would impact sales. But upon reporting even-weaker-than-expected sales of iPhones, Macs, and wearables for the latest quarter Thursday, Apple Chief Executive Tim Cook also said that “production is now back where we want it to be.”
Read: Apple earnings show steepest sales decline in more than 6 years
“We surmise that demand for premium devices is entering a period of modest contraction for iPhone and Mac units but expect Apple to outperform the market given its product roadmap,” Cowen & Co. analyst Krish Sankar wrote following the report, as he maintained an outperform rating but cut his price target to $195 from $200.
In his view, Apple’s higher-end iPhone 14 Pro and Pro Max devices are seeing a demand slowdown of sorts but “faring relatively better vs. the broader high-volume mobile market.”
Apple shares were up 0.3% in morning trading Friday.
LightShed Partners analyst Walter Piecyk, who warned ahead of the report about declining smartphone upgrade rates shown by the wireless carriers, was brief with his initial Twitter take on the results.
Bank of America’s Wamsi Mohan kept a neutral rating on Apple’s stock, praising the company’s recent margin performance but noting his lingering demand worries.
“[C]onsumer confidence remains low and we remain concerned on weak end market demand,” he wrote.
Mohan said that factors like lower spending, tough comparisons for Mac and iPads, and a weaker path ahead for services will balance against improving iPhone supply and the potential for new product introductions.
Raymond James analyst Melissa Fairbanks commented that Apple’s report illustrated mounting issues that have her taking a more measured view of the year ahead.
“While AAPL has historically been relatively immune to economic downturns, given FX [foreign-exchange] headwinds and growing consumer-facing macro uncertainty, we’re taking a more conservative approach to our outlook for the year, before returning to a more normalized seasonal pattern in FY24,” she wrote in a note to clients.
While she cut her price target on Apple’s stock to $170 from $185, she kept an outperform rating, saying that Apple is a “core tech holding, which is likely to provide a relative support for shares despite the market volatility.”
Apple declined once again to offer a traditional forecast, meaning that investors didn’t get a ton of useful information about how the iPhone business is expected to hold up. Sales of iPhones declined in the latest quarter, and executives merely shared that they expected year-over-year revenue performance to accelerate in the March quarter.
“The biggest unanswered question is whether or not weaker consumer spending will start to hurt iPhone,” wrote Oopenheimer’s Martin Yang. “While March-quarter guidance reveals little about iPhone demand, Apple should benefit from moderating FX impact, Chinese consumers free from COVID restrictions, and low channel inventories.”
Yang has an outperform rating and $170 target price on the stock.
Opinion: Apple offers breadcrumbs for a forecast, but is that enough to reassure Wall Street?
JPMorgan’s Samik Chatterjee weighed in to share that Apple’s guidance “reflects in our view what we already envisioned as a deeper down-cycle in consumer hardware, including in smartphones and PCs,” something “largely corroborated by the weaker guidance from key smartphone chip supplier, Qualcomm.”
At the same time, he feels that the commentary “embeds a fair degree of conservatism from Apple,” as the company’s China issues may have led it to lowball expectations, “which can also provide the opportunity for upside if the headwinds were to ameliorate sooner than expected.”
Chatterjee has an overweight rating on Apple’s stock, though he reduced his target price to $175 from $180.
Citi’s Jim Suva, meanwhile, thinks that Wall Street is too pessimistic.
“The amount of investor negativity on mega cap tech stocks, especially Apple, is well known as recent surveys show Apple as the least favored stock amongst its peers,” he wrote. “Bears will be quick to point out negative sales growth but we note when adjusting for FX that sales and outlook are flat, which is materially better than other consumer-electronic companies.”
He has a buy rating and $175 target on the stock.
Credit: marketwatch.com