Apple (AAPL) Stock Off to Strong 2019, but China and iPhone Challenges Will Likely Persist

Apple (AAPL) pleasantly surprised investors late last month when it released a positive earnings report, starting the company off on the right foot in 2019 after a rough end to 2018. Though its stock is still down 25% from its 2018 high, shares are up 11% since the earnings update, indicating that investors are happy with Apple’s current track.

While the company still faces major headwinds, including (and especially) China’s economic deceleration, as well as shifting consumer preferences and product pricing challenges, Wedbush analyst Daniel Ives remains bullish on the stock, reiterating an Outperform rating and $200 price target. (To watch Ives’ track record, click here)

Ives says that Apple experiences “nightmarish lows” in  2018, “after its China XR debacle and weak December results.” The company did not help itself after it pulled “iPhone unit metrics which has significantly reduced transparency on the name going forward for the Street and still remains a hot button issue among many investors today.” Ives admits that Apple “took a step in the right direction this past quarter by providing an iPhone installed base number of 900 million (vs. Street expectations of ~700 million),” but “does not change the clear facts that potentially dark days are on the horizon.”

With all that said, Ives points to the loyalty to the company, saying, “customer retention rates of 90%+ and 350 million iPhones in the window of an upgrade opportunity over the next 12 months” provide an opportunity for Apple come the iPhone 11 release (expected in Fall 2019). Apple must “prove there is enough gas left in the growth engine and most importantly put a steel fence around its golden customer base.”

Ives believes there is increased pessimism surrounding Apple on Wall Street and that upper management is ”struggling to find the answer to turn this negative around.” Ives says its Services segment is “playing a major role and a linchpin to Apple’s future success,” and has the potential of significantly adding to shareholder value, especially if Apple’s video content subscription service (expected to launch in 2019) is as successful as expected. Apple is also sitting on a pile of cash ($200+ billion) which is expected to be used for acquisitions. 

All in all, Wall Street almost evenly split between the bulls and those choosing to play it safe. Based on 35 analysts polled in the last 3 months, 17 rate Buy on AAPL stock, while 18 maintain Hold. The 12-month average price target stands at $176.80, marking a slight upside potential for the stock. (See AAPL’s price targets and analyst ratings on TipRanks)

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