Shares of Apple (AAPL) have been down about 20% since its earnings report in early November and investors are becoming more bearish by the minute. The mixture of poor demand for the latest iPhone XS/XR releases, soft December guidance, retracting the iPhone metrics from interested analysts and investors plus the latest news about a potential tariff on China is creating the perfect storm of negativity on the stock. Wedbush analyst Daniel Ives says he’s been getting questions from investors who want to know if they should stay bullish on the name or just throw in the towel on the stock until the dust clears. Ives says it’s a valid question to have and he has an answer.
“…while this sell off has been a painful one that is hard to stomach for tech investors and caused many of our peers to move to the sidelines on the name, we strongly believe that the valuation on the name at current levels and further monetization of its 750+ million active iPhone installed base through future upgrades and a $50 billion+ services revenue stream speaks to our bullish thesis on Apple for the coming years which remains unchanged,” Ives explains.
The analyst points to the numbers – iPhone unit growth could be closer to 210 – 212 million units in fiscal year 2019 instead of Ives’ original estimates of 218 – 220 million units with average selling prices trending in the $800 range.
“We ultimately believe Apple will need to seriously contemplate pricing changes and/or design changes with the next cycle of iPhones slated for the fall of 2019 to drive a surge of upgrade activity that has moved out of FY19 and into FY20 as well as significantly invest (organically and through acquisitions) in its content/services strategy over the next 12 to 18 months to drive more growth initiatives. While we are reducing our FY19 estimates to reflect softer demand in the XS/XR cycle we believe $15 of earnings power in FY20 is very hittable despite bearish sentiment on the name,” Ives comments.
With that in mind, the analyst rates the stock Outperform and nevertheless lowers his price target from $310 to $275 in order to reflect the reduced estimates and the softer near-term iPhone data points. Ives says through it all, Apple still remains one of his favorite tech names heading into 2019 despite the AAPL “horror show” over the last month. (To watch Ives’s track record, click here)
TipRanks has been keeping an eye on the “horror” of AAPL and found out of 35 analysts, 21 are still bullish, 13 are sidelined and 1 is bearish. The consensus price target of $233.54 shows an upside of just 29%. (See AAPL’s price targets and analyst ratings on TipRanks)