Wedbush: China weighs on Apple, but not that much

By Steven M. Peters Updated Jan 11, 1:09PM EST · Published Dec 31, 8:05AM EST

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“We believe shares of AAPL have been unduly punished on apocalyptic demand concerns.” —Analyst Daniel Ives

From a note to clients that landed on my desktop Monday:

Cupertino in the eye of the China tariff storm. For Apple, given the tightly woven integration between Cupertino and Foxconn in China and the billions invested in this relationship, we do not believe any major iPhone factory changes will happen in the near term although this remains a clear worry for investors on this name especially with reports that some high end iPhones will now be assembled in India for 2019.

We ultimately believe it would be an arduous and costly effort for Apple to slowly move production out of its core Foxconn factory in China, representing a draconian scenario for Cook & Co., which speaks to why the current US/China tariff situation is one of the major overhangs on the stock.

In addition, with roughly 20% of the 350 million iPhones worldwide in the window for an upgrade opportunity over the next 12-18 months out of the key China region based on our estimates, any consumer backlash from the current Huawei CFO situation only adds to XR demand concerns which will be front and center to gauge iPhone success in the December quarter/March guidance.

We believe shares of AAPL have been unduly punished on apocalyptic demand concerns with China representing the key linchpin in this bull/bear debate. While iPhone demand on this latest XS/XR cycle has been underwhelming with much of this news factored into reduced Street estimates, we estimate on a sum-of-the-parts valuation with the services business worth $400 billion to $450 billion on a standalone basis and factoring in ~$240 billion of cash, currently values the iPhone franchise at roughly 1x revenues, a compelling risk/ reward in our opinion.

Maintains Outperform rating and $275 price target.

My take: Okay, but shorter sentences, please. Too many run-ons.

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