Bad Apple (AAPL) Alert: How Will Tech Giant’s Earnings Impact Stock?


Bad Apple?

That’s what investors are concerned about before Apple’s (AAPL) earnings release at the close of market today. The company experienced a rough 2018, with the stock decreasing more than 30% between the beginning of October and the end of the year, amid China concerns and unit sales challenges. Making matters worse, CEO Tim Cook issued an earnings guidance at the beginning of the year, which revised-down quarterly revenue (among other numbers) ahead of today’s release. As analysts expected, Cook pointed to China’s economic deceleration (especially as it relates to iPhone), as the key reason for Apple’s slowdown.

Nevertheless, Canaccord analyst Michael Walkley reiterated his Buy rating on the stock, with a price target of $190. (To see Walkley’s track record, click here)

Walkley echoed Cook in blaming iPhone sales for Apple’s short-term troubles. The analyst says he expects “soft smartphone demand combined with relatively high inventory levels,” which has prompted him to lower iPhone estimates. He continues, “while we believed the lower-priced iPhone XR would generate strong sell through trends, our surveys indicate muted demand versus our expectations.” As a result, he has reduced his “C’19/C’20 iPhone unit sales estimates from 180M/194M units to 177M/191M units.”

But while Walkley is bearish on iPhone sales for this past quarter, the analyst says he still expects Apple to sell over 175M iPhones annually, which will help “drive a growing ecosystem to drive ancillary revenue streams.” As a result, the analyst continues “to believe Apple can sustain double-digit Services revenue growth driven by growth from the App Store, strong subscriber growth in Apple Music, Apple Care, iTunes/iCloud and Apple Pay.”

Because Services and Other Products revenue are “expected to grow faster than the overall company, our reduced iPhone unit sales revisions are partially offset.” The analyst says he also believes “an eventual settlement with Qualcomm could have a positive impact to Apple gross margins and view the outcome of the current FTC trial as critical toward the two companies reaching an eventual settlement.”

Overall, TipRanks indicates Wall Street is split on Apple. Out of 36 analysts polled in the last 3 months, 19 are bullish on Apple stock, while 17 remain sidelined. The 12-month average price target of $183.98 reflects healthy upside potential of nearly 18% from its current price. But even in price targets, there is some significant variation; the most-bullish analyst goes as high as $300, while one analyst goes as low as $140. (See AAPL’s price targets and analyst ratings on TipRanks)