Barclays and UBS analysts are sharing their two cents on Apple Inc. (NASDAQ:AAPL) as the tech giant prepares to enter the next round of earnings season. Each analyst highlights points of concern, particularly in regards to opportunities in China, yet from differing perspectives. Whereas the Barclays analyst steps to the sidelines with a price target cut, the UBS analyst maintains optimism amid apprehension.
Let’s take a closer look:
The Barclays Take: Time to Take a Step Back
Barclays analyst Mark Moskowitz is erring on the side of caution when it comes to the tech giant ahead of APPL’s first fiscal quarter results out tomorrow. Without any significant catalysts to bring in substantial upside in the next year, the analyst downgrades from Overweight to Equal Weight on shares of AAPL while slimming the price target from $119 to $117, which represents a 3% downside from where the stock is currently trading.
Moskowitz explains, “This call is not on the quarter. Despite easier comps approaching, we do not expect meaningful upside potential in the model and thereby consensus estimates for C2017, limiting the stock’s relative outperformance potential – hence, the downgrade. Apple has a sticky ecosystem and large cash balance, though, providing decent downside support for long-term investors.”
As far as the analyst sees it, the “growth rebound” investors seek is “elusive,” and most hopes rest on the iPhone 8 roll-out expected in the second half of this year. If customers value the iPhone 6S over the iPhone 7 (“the smartphone blues”) and the “consumer electronics adoption wave” weighs heavily on the giant as well as the smartphone industry, Moskowitz sees reason to be concerned. Meanwhile, the analyst underscores, “We also are concerned about China and India not emerging as growth catalysts in the next 12 months.”
Ultimately, “The next harvest requires some patience. Long-term growth opportunities related to India, services, the enterprise, artificial intelligence, and maybe even the Cloud still exist; however, we do not expect these potential ‘what’s next?’ opportunities to emerge as major needle movers over the next 12 months for Apple’s model,” Moskowitz contends.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Mark Moskowitz is ranked #276 out of 4,378 analysts. Moskowitz has a 60% success rate and realizes 12.2% in his annual returns. When recommending AAPL, Moskowitz yields 35.0% in average profits on the stock.
The UBS Take: Positive, But Not Without Worry
Conversely, UBS analyst Steven Milunovich remains positive on Apple’s overall long-term prospects while acknowledging concerns do lie ahead.
With Apple expected to deliver its fiscal first quarter print for 2017, though Milunovich anticipates “mediocre guidance,” he also expects a “solid quarter.” As such, the analyst reiterates a Buy rating on AAPL with a price target of $127, which represents a just under 5% increase from current levels.
Weighing in Apple’s favor, the analyst believes based upon the CIRP U.S. survey there is a “mix shift to the Plus and greater storage [that] should bolster the ASP.” When looking at iPhone sales for this year, the Pluses contributed to 42% of overall sales, a nice surge above last year’s 26%. Secondly, 62T of customers have chosen to invest an additional $10 or $200 in storage “step-ups,” which the analyst commends as a “high,” encouraging number. Third, even though the Android saw great upgrades this year, the numbers who switched over to the iPhone were still “stable.” Fourth, Milunovich notes, “The upgrade cycle does not seem to be further lengthening as 54% of phones in the Dec quarter were two years old or less vs 49% in 2014.”
Assessing these results, the analyst determines, “These and other findings support our UBS Evidence Lab conclusion that interest in the iPhone 7 is better than for the 6s but not as strong as for the 6 two years ago.”
Moving forward, “Although we continue to forecast double-digit iPhone growth in F18, there are worries. We look for China to be down again this year, which requires 8% growth in non-China phone units. Despite a higher ASP, the gross margin could be pressured by a higher iPhone 7 BoM, the strong dollar, and less accounting help. We expect the March gross margin guide to be down at least 80bps YoY due to currency and increased BoM costs,” Milunovich concludes.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Steven Milunovich is ranked #1,518 out of 4,378 analysts. Milunovich has a 52% success rate and gains 2.1% in his yearly returns. When recommending AAPL, Milunovich earns 9.1% in average profits on the stock.
TipRanks analytics exhibit AAPL as a Strong Buy. Out of 31 analysts polled by TipRanks in the last 3 months, 26 are bullish on Apple stock and 5 remain sidelined. With a return potential of 12%, the stock’s consensus target price stands at $136.61.