Why Analysts Are So Mixed on Upside Around Apple iPhone Guidance

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Apple Inc. (NASDAQ: AAPL) remains the most valuable company in the world by market cap. It is also one of the top companies followed by the public and by the analyst community. With Apple shares down in reaction to beating some earnings expectations, 24/7 Wall St. wanted to take a closer look at the world’s most widely followed company.

Apple managed to sell more iPhones than analysts had called for. Revenue guidance was also higher. After it sold 45.51 million iPhones, Reuters had projected a 44.8 million unit consensus. What stands out here is that this actually marked the third straight quarter of falling iPhone sales, versus 48.05 million units this quarter last year. Revenue of $46.85 billion also marked the third consecutive decline — and this was the first annual drop in revenue dating back all the way to 2001.

Tim Cook’s guidance for the holiday quarter already has been pondered as perhaps being conservative by some analysts. Cook’s forecast of $76 billion to $78 billion in holiday quarter revenues compares with about $75.1 billion expected from Thomson Reuters.

One thing that may be an issue is that Apple already claims to be selling out everything it releases in China. That will make it harder for Cook and Apple to capitalize handily off of Samsung’s huge phone recall debacle. Intense competition is persistent in this space, even from Chinese rivals.

24/7 Wall St. has so far tracked 13 analyst changes. By the weekend, there may have been two to three times that many calls.

Stifel was one of the key downgrades. The firm thinks the implied guidance of 75 million to 77 million iPhone units may be questioned by investors as well. Apple’s weakness in China led to it being downgraded to a Hold from Buy, and the firm cut its price target to $115 from $130.

Credit Suisse reiterated Apple’s Outperform rating and also kept its $150 price target static. That is way above consensus. Near term, iPhone is performing OK and growth is returning. Credit Suisse said:

iPhone units came in at 45.5 million (-5.3% year over year), which was an improvement over last quarter’s decline of 15.0% year over year. We now assume 77.3 million units next quarter, up 3.5% year over year. The company noted that the iPhone 7 and in particular the 7 Plus are both currently supply constrained and may not reach supply and demand equilibrium until the end of the year or later, suggesting underlying demand is strong.

FBN Securities reiterated its Outperform rating and raised its $120 target price to a higher $130 target on Apple. The firm noted that profit taking and gross margin concerns create an attractive entry point for long-term investors.

Mizuho thinks the iPhone guidance was too conservative due to the recent news flow around rival Samsung.

Merrill Lynch has a Buy rating and $125 price objective. The firm issued 10 different reasons to own Apple after earnings. It said:

The iPhone average selling prices (ASP) and mix should more than offset marginally lower units that are supply constrained. The iPhone 7+ will remain constrained in the December quarter and channel inventory has room to move higher in March. Longer term ASPs have more room for upside and carrier subsidies (in US) likely to continue at a two year cadence.

Morningstar noted that Apple provided solid enhancements for iPhone and the Apple Watch, and it maintained a $133 fair value estimate.

The S&P Equity research group reiterated its 12-month target price at $130 as it is more optimistic about the iPhone 7 cycle, and it sees accelerating services growth and Apple winning from higher Android switch rates.

Other price target hikes were seen as follows:

  • Barclays to $119 from $114.
  • Independent Research to $140 from $130.
  • JPMorgan to $114 from $107 (under current price).
  • Macquarie to $133 from $132.
  • Piper Jaffray to $155 from $151.
  • Raymond James to $148 from $139.

Apple shares were in the red on Wednesday after earnings. After closing at $118.25, Apple shares were down $3.34 at $114.91, for a 2.8% drop. That may be lower, but shares actually hit a low of $113.31 earlier Wednesday morning. It is just important to realize that Apple shares had been on a serious rampage higher from its lows earlier this year.

Another consideration is that analysts have ratcheted their price targets higher in general. Thomson Reuters showed that the consensus analyst price target is $130.48 now. That target was $126.73 a month ago, $124.11 just 60 days ago and $122.39 90 days ago.