GBH Chops Price Target on Apple (AAPL) Ahead Upcoming FQ2 Earnings; Here’s Why

GBH Insights' Daniel Ives spotlights 25% in return potential now for AAPL stock, trimming his expectations by $3.


Apple Inc. (NASDAQ:AAPL) is getting a price target cut from GBH Insights analyst Daniel Ives ahead of next Tuesday’s second fiscal quarter showcase, a print the analyst calls “highly anticipated.” With Ives joining the ranks of those on the Street bracing themselves for yet another slice on the iPhone guide stemming from weaker demand trends.

In reaction, the analyst has dialed down his expectations for fiscal 2018 as well as 2019. Additionally, in his earnings preview, the analyst reiterates a Highly Attractive rating on AAPL, but winds down his price target from $205 to $205. This still implies a healthy close to 25% upside from current levels. (To watch Ives’ track record, click here)

Approaching the upcoming earnings show, Ives spotlights Wall Street in “full panic mode,” considering Asia supply chain checks indicate iPhone shipments for the third fiscal quarter are trending far under expectations, which negatively offset any encouraging data points, including rising average selling prices (ASPs) in the second fiscal quarter.

For the quarterly print, the analyst calls for 52 to 53 million in iPhone unit shipments as well as climbing ASPs, which should lead to a quarter that at the very minimum meets expectations- and may beat them.

Though Ives understands Asia supply chain buzz is not boding well for the tech giant, he nonetheless sees a bigger picture solid upgrade narrative intact for Apple’s iPhone: “The bad news continues to pour in from Asian suppliers and checks with softer demand and $1,000 sticker shock price points on iPhone X translating into another guidance cut expected next week on the horizon […] The big question now is what will the demand picture look like post June with a much anticipated three pronged smartphone product cycle around the corner and will this finally be the product catalyst to turn things in the right direction for Cook & Co. To this point, we continue to believe the Apple iPhone upgrade story for 2018/2019 is still intact and it’s time to take a deep breath as despite soft demand spots from the iPhone X coming out of China and the US over the last few months, the product cycle thesis out of Cupertino is delayed/elongated rather than gone forever in our opinion.”

Looking ahead throughout the next year to year and a half, Ives wagers the tech leader is looking at around 350 million iPhones waiting in the wings for an upgrade. It will simply be a matter of model and price point to win over consumers to spring for the upgrade amid softening iPhone X demand. Apple has three new iPhones slated for releases to be “staggered” throughout the next six to nine months that could magnetize iPhone customers that for now have been on the “fence.”

‘However, Ives acknowledges it has not been easy for bulls to see iPhone unit demand take an over 15% downturn considering “original ‘super cycle’ expectations,” this has absolutely been “weighing on shares.” Thankfully, services looks to be on track to bring $50 billion in yearly revenue by fiscal 2020, Ives notes, and China continues to be an important catalyst- Apple’ “main swing factor” boasting an installed base of more than 100 million iPhones- where more than half of China’s customers stand ready for an upgrade sometime during fiscal 2018 or the first half of fiscal 2019. Perhaps the Chinese market spells out “a renaissance of growth on the horizon” for the giant, concludes Ives, still batting for the bulls at the end of the day.

TipRanks indicates the big Apple machine has earned bullish attention on the Street. Out of 28 analysts polled in the last 3 months, 17 rate a Buy on AAPL stock while 11 maintain a Hold. The 12-month average price target stands at $192.88, marking nearly 18% in upside potential from where the stock is currently trading.