Don’t Say Bye Bye to Apple (AAPL) Stock, Say Buy Buy

The most important news of last week, of course, was Apple’s warning about sluggish performance. As a reminder, the tech giant has warned investors that revenue would fall shorter for the fiscal first quarter than the Street had predicted. Apple guided $89 – $93 billion for the December quarter, but it looks like the company will be hitting just around $84 billion instead. Some blame the lack of revenue on soft demand in China, but RBC Capital’s Amit Daryanani has a range of suggestions for the downfall.

With a long-term picture in mind, Daryanani maintains an Outperform rating on AAPL stock, wtih $185 price target, which shows a potential upside of about 23%. (To watch Daryanani’s track record, click here)

Daryanani did his research – discussing the implications of the negative news with investors. They say they’re comfortable with AAPL being underweight – and ultimately, so is Daryanani. “While we get the disappointment around AAPL’s first negative pre in >15 years driven by China issues and an unexciting iPhone product line-up. Positively, we are seeing an expansion of their install base and better monetization of the install base (services +28% and wearable +50%). While investors will wait for March-qtr clarity we think risk/reward is attractive on the name,” the analyst explains.

Daryanani also shares his hot take on the Chinese economy and how it plays a role in AAPL’s story. “We do think demand in China is weak – auto sales are down double digits in the Decqtr, China PMI was sub-50 exiting 2018 and broader consumer spend is soft. However, we also think there are other factors impacting AAPL a) higher iPhone ASPs and limited innovation, b) elongated replacement cycles, & c) competition.”

Furthermore, the analyst zeroes in on what would be attractive for AAPL bulls – which include products like the “service bundles,” which he believes will benefit monetization in addition to the high attach rates of Apple wearables. Alternatively, Daryanani predicts the bears will focus on iPhone units, which he suggests will remain “muted” unless Apple changes the pricing or skews the innovation to add 5G products.

What do other analysts say about the iPhone maker? It’s totally split. TipRanks analytics shows out of 36, 18 analysts are bullish and 18 are sidelined. The consensus price target of $181.07 shows a potential upside of 20%. (See AAPL’s price targets and analyst ratings on TipRanks)

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