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Why Does This Analyst Fear for Apple (AAPL) Stock Post Holidays?


iPhone XR sales improved since China’s consumerist holiday called Singles Day on November 11. Sales were high due to online retailers offering a 10-15% discount, but even so, analyst Jun Zhang from Rosenblatt says he’s wary about how much Apple (AAPL) will actually produce after the holiday partly due to competition from China’s electronics company Huawei.

Zhang notes Huawei cell phones are selling very well in China. The Mate 20 had high sales and the Mate 20 Pro sold out. Zhang believes Pro sales grew between about 20 to 25% year over year compared to the Mate 10 sales, even with quality issues from LG display impacting its shipping schedule. This is a concern for Zhange: “We believe many high-end consumers switched to Huawei’s smartphones over the last two years, leading to the company taking share in China not only from Samsung, but Apple as well.”

This isn’t the first time Zhang has been worried over production numbers. It’s a trend. Let’s go chronologically – starting on September 13. Zhang gave a cautious view on the Apple supply chain, since he believed production for the iPhone XR was behind both the XS and the Max.

“If Apple decides to cut production after the holiday season, we believe this may lead to stability within the Apple supply chain in the March quarter due to stabilizing iPhone XR sales. We believe both the iPhone XS and Max sell-through rates may face normal seasonality during C1Q, while iPhone XR sales might be relatively stable due to the late launch of the model,” Zhang said.

October 29th Zhang noted initial iPhone XR sell-through data was weaker than initial iPhone XS/Max sales. That made the analyst revise production estimates for the new iPhone models in C4Q down from 90 – 95 million units to 88 million units.

November 7th, Zhang though iPhone XR sell-through rates continued to be weaker than expected and believed Apple could potentially reduce production for the iPhone XR by an additional 4 – 5 million units for C4Q. After those estimate reductions, Zhang again revises his projections, cutting estimates of total iPhone production in C4Q and C1Q to 74 million units and 39 million units, respectively.

“We currently estimate production for the iPhone XS/Max to be 18 million units in C4Q. If iPhone XR unit sales slightly surpass total iPhone XS/Max unit sales, we believe Apple might only need to produce ~25-28 million iPhone XR units in C4Q. We believe Apple is targeting production of 32 million iPhone XR units in C4Q, which is why we believe the company might need to cut production again after the holiday season,” Zhang said.

The bottom line is after all of the production estimate drops and fear of Zhang can only offer a Neutral rating for the stock with a price target of $200, which implies nearly 13% upside from where the stock is currently trading. (To watch Zhang’s track record, click here)

The word on the Street rings largely bullish on the iPhone maker, with TipRanks analytics demonstrating AAPL as a Buy. Out of 35 analysts polled in the last 3 months, 21 are bullish on Apple stock, 13 remain sidelined, and only 1 is bearish. With a return potential of nearly 32%, the stock’s consensus target price stands at $236.27.  (See AAPL’s price targets and analyst ratings on TipRanks)