Top analyst Michael Walkley at Canaccord is certainly bullish on the bigger Apple (NASDAQ:AAPL) narrative at play. However, ahead of this evening’s second fiscal quarter showcase, Walkley joins the group of top analysts waning short term iPhone sales. There could prove to be a bigger mix of iPhones with cheaper price tags approaching the fall’s new product launch; and this leads Walkley to scale back his iPhone expectations in lieu of fears of even more inventory reduction about to hit.
Nonetheless, the analyst stands by the bulls, betting on a colossal installed base to bring to the table a tide of iPhone replacement sales and earnings- along with cash flow generation to keep fueling robust long-term capital returns. Walkley reiterates a Buy rating on AAPL stock with a $200 price target in his earnings preview, suggesting a 20% upside from current levels.
Based on North American survey work to industry contact chats, the analyst braces for iPhone sale weakness to keep confronting Apple through September’s launch of new products. Moreover, the analyst looks for the tech titan to clear channel inventory before the release of its three new iPhones come September, spurring him to dial down his third fiscal quarter iPhone forecast from 34.5 million to 39.4 million units. Additionally, the analyst has cut his iPhone unit projection for 2018 from 205 million to 210 million while leaving 2019 iPhone unit expectations unchanged at 217 million. For 2018, the analyst is also reducing his iPhone ASP expectations from $754 to $749, and for 2019 from $739 to $730.
“For the mature North America market, we believe the price point above $1,000 has been a greater deterrent for broad market appeal than anticipated. In China, we believe the 5.8-inch iPhone X screen size is not large enough for the high-end segment of this market. In fact, a variety of smartphones from Chinese OEMs with similar or larger screen sizes were already available prior to iPhone X. In addition, new Android smartphone offerings have increased competition in China and other markets, likely contributing to slower near-term iPhone sales. Despite these challenges, we believe iPhone X sales have maintained strong share of the U.S. market, and we do not believe Apple consumers are leaving the Apple ecosystem for competing Android smartphones. However, we believe Apple could change pricing strategies on new iPhones launched in September that could help improve demand,” writes Walkley.
Yet, the analyst likewise calls for AAPL to reveal a jump in its share repurchase program and dividends this evening, which would partially offset these scaled back iPhone unit forecasts. As such, Walkley is lifting his share repurchase estimates. The net result leads Walkley to dial down his EPS projections, taking his estimate for 2018 from $11.60 to $11.38 and for 2019 from $12.57 to $12.52.
Walkley in the grander scheme still goes on singing the praises of this tech titan’s leading market share growth of the smartphone market and a towering installed base that he bets outclassed 635 million in iPhone users closing out last year. This tech machine spins success beyond inventory reductions at the end of the day. Either way, all eyes will be peeled to tonight’s results to see just how Wall Street will react to the quarter amid soft iPhone sale fears.
Michael Walkley has a very good TipRanks score with a 60% success rate and a high ranking of #95 out of 4,772 analysts. Walkley yields 16.4% in his annual returns. Investors following Walkley’s recommendations on AAPL stock will earn an average of 25.2% in profits on the stock.
TipRanks exhibits this tech machine has magnetized a solid amount of bulls rooting for its future success. Out of 28 analysts polled in the last 3 months, 17 are bullish on AAPL stock with 11 hedging their bets on the sidelines. With a return potential of 17%, the stock’s consensus target price stands at $194.17.