Why Does this Analyst Doubt Apple (AAPL) Stock Will Do Well?

Apple (AAPL) released the iPhone XR just about two weeks ago and Rosenblatt’s Jun Zhang believes the sell-through rate continues to be weaker than he initially expected. Because of this, the analyst says Apple might begin another round of iPhone XR production cuts for C4Q and might reduce production for the device by an additional 4-5 million units.

With those alarming changes in mind, the analyst reiterates a Neutral rating for Apple stock with a price target of $200. (To watch Zhang’s track record, click here)

Zhang believes the company may “increase iPhone X production by 1-2 million units due to iPhone X promotions for the holiday season by some telecos.” The analyst continued, “We think it is rare for Apple to make such dramatic production changes before the holiday season. We also believe component inventory levels are not high at Apple. We will continue to track iPhone holiday season sell-through rates in order to see if the production cuts are more attributable to Skyworks’ PA quality issues or if Apple is taking a more conservative approach to prepare for further softness in demand.”

“On October 29, we trimmed our iPhone shipment estimates. We currently estimate production and shipments for the new iPhone models in the second half of 2018 to be 88 million units and 76-77 million units, respectively. For the March quarter, we estimate production and shipments of 36-37 million units (a drop of 40%-50% q/q) and 35 -36 million units, respectively,” Zhang added.

In general, Zhang estimates C4Q iPhone shipments to reach about 82 million units flat, as 82 million were sold in 2017. That includes older models as well. The estimate faces downside risk if sell-through rates do not improve during the holiday season or if Skyworks’ PA issue continue into the first quarter. Either way, the analyst says he plans to track both sell-through rates for November as well as Skyworks’ PA issues in order to evaluate the shipment estimates for C4Q.

Zhang isn’t the only one sidelined on the Street about Apple stock, but he is in the minority. TipRanks surveyed 35 analysts who’ve been taking a bite out of AAPL: 22 rate it a Buy while 12 rate it a Hold and 1 a Sell. The consensus price target is $239.50, showing an upside of about 14% from current levels. (See AAPL’s price targets and analyst ratings on TipRanks)

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