Singapore: Analysts on Wall Street have lowered their share price targets for Apple Inc. after the tech titan cut its revenue outlook for the first time in almost two decades. At least four firms reduced their forecasts by more than 15 per cent after CEO Tim Cook said the company expects sales of about $84 billion (Dh309 billion) in the quarter ended December 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.
KeyBank Capital Markets was less optimistic after the forecast cut, noting that the company is facing large risks around its pricing for iPhones and monetisation 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.
Apple shares plunged by as much as 8.5 per cent post-market on Wednesday (January 2).
According to 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. He also reduces his full-year 2019 revenue estimate by 6 per cent to $253 billion and earnings per share by around 10 per cent to $11.66.
“The lowered expectations are largely due to weaker than anticipated iPhone sales in Greater China, as well as several emerging markets,” said Michael J. Olson of Piper Jaffray,
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 per cent and 4, respectively.
According to Amit Daryanani of RBC, “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 to $220.
Katy Huberty of Morgan Stanley has an overweight rating on the stock, cutting the price target to $211 from $236. “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 29 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.”