As part of its fourth-quarter earnings update early last month, Apple (AAPL) announced it would stop releasing unit sales data for iPhone, iPad and Mac. Under normal circumstances, this would not be such a big deal, as Apple has proved itself as a money-printing machine. But we’ve entered unchartered territory for Apple, as investors are showing some concern over the company’s price-power ability.
KeyBanc analysts Andy Hargreaves is primarily concerned with “soft” demand for the iPhone Xr, citing “troubles in pricing land.” As a result, the analyst reiterates a Sector Weight rating on AAPL.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Andy Hargreaves has a yearly average return of 22.4% and a 61% success rate. Hargreaves has a 31.4% average return when recommending AAPL, and is ranked #98 out of 5,108 analysts.
Hargreaves concedes the Xr is a “good phone” and suggests this phone should be sold the way iPhone models have sold in the past. But the analyst notes that “many prospective buyers (are) choosing to buy” older models instead, which “suggests a growing number of consumers see little value in hardware updates”.
The analyst believes this problem is “creating a challenge to driving revenue growth through increased pricing.” Even as Apple has released phones with better hardware, Hargreaves says, “the pricing power of screen size and brand (name)” have been “seemingly maximized.” The analyst “see little to drive incremental pricing power…(which) may be particularly challenging in F2020, as the high end is likely to lack a new form factor, while the willingness to trade down in the mid-range appears unlikely to reverse.”
Hargreaves expect Apple’s challenges to impact revenue in FY2019 and beyond. He has pulled back his expectations for next year, citing lower iPhone unit sales and ASPs, and will be reducing his FY2020 revenue and profit estimates.
Even as the KeyBanc analyst is skeptical about Apple’s growth prospects, Wall Street analysts are optimistic about the iPhone maker. TipRanks analysis of 34 analyst ratings on the stock shows that 19 analysts recommend Buy, while 14 recommend Hold. Only one recommends sell. The average price target is $228.31, representing a 35% upside from where the stock is currently trading. (See AAPL’s price targets and analyst ratings on TipRanks)