Analysts Offer Very Mixed Views on Apple After Weighing DOJ/WWDC Implications

June 4, 2019 by Jon C. Ogg

Apple Inc. (NASDAQ: AAPL) stock recovered handily on Tuesday, on the heels of potential regulatory activity from the U.S. Department of Justice (DOJ) and after its annual Worldwide Developers Conference (WWDC). The gain of 3% was helping the Dow Jones industrial average’s overall recovery, as well as the S&P 500 and Nasdaq indexes, but it was after a 1.1% drop on Monday.

24/7 Wall St. has reviewed the many analyst calls that have been made on Apple. Unlike the past, when almost every analyst was firmly positive, there are some very mixed views on Apple at the moment. Also worth noting was that many of the analysts who were positive actually gave less positive views by lowering their price targets.

Daniels Ives of Wedbush Securities still has an Outperform rating and $235 price target. His report follows the media reports that the DOJ has received jurisdiction for a potential probe into Apple. Ives said:

We note that this probe would ultimately be a part of a broader review of tech stalwarts such as Google and Facebook by the DOJ and specifically looking into whether Cupertino used “its size” to violate anti-trust laws with the App Store front and center. For the most part the DOJ would be looking into how/if the company’s subscription fees from developers and the use of its App Store, which it owns and operates as an online marketplace, are in any way anti-competitive. This further fans the flames of the existing worries around anti-trust issues for Apple which were first re-ignited by the US Supreme Court on May 13 allowing the “Apple Inc. vs. Pepper” case to proceed in the lower courts which goes directly after the App Store fees as well as broader monopoly swirls as part of this case.

All in all, Ives sees the bark as worse than the bite near term for a DOJ antitrust case with Apple, and his comments pointed out that any thoughts of a breakup of the Apple core businesses would be similar to an impossible Siamese twin operation. He noted:

That said, this DOJ potential probe will be an overhang on the stock, but ultimately we would encourage investors to focus on the fundamentals of Apple in the near-term as any probe would take many years to complete as we witnessed first hand with Microsoft in the late 1990’s/early 2000’s, which proved to be more noise than a structural jolt to its business model.

Nomura/Instinet’s Jeffrey Kvaal said that the 2019 WWDC showcased the most notable improvements to iOS that have been seen in years. His report still yields only a Neutral rating and $175 price target. The report said:

A compelling set of new features in iOS 13 should help iPhone replacement sales on the margin as Apple also ends support for the older iPhone 6. However, concerns over a potential DoJ inquiry largely overshadowed the noteworthy developer conference. We retain our view for soft unit volumes given rising trade tensions and thus, restrained iPhone and Services growth; our rating remains Neutral.

Canaccord Genuity maintained Apple as Buy but lowered the target price handily to $202 from $245. Michael Walkley at Canaccord lowered his target price due to China concerns creating more potential downside to the estimates and based on expectations for muted iPhone upgrades ahead of 5G in September 2020. Walkley said:

Given ongoing trade tensions between China and the Unites States, we believe Chinese consumers could slow Apple hardware purchases, leading us to trim our estimates. We also anticipate increased input costs given the trade issues and have slightly lowered our gross margin assumptions. Further, our surveys indicate consumers are willing to hold onto iPhones longer, and we believe many could wait for new 5G technologies, leading us to lower our 2019 and 2020 iPhone estimates from 180M/190M units to 172M/185M units. Should the U.S. place a 25% tax on all Chinese imports to the U.S. with no exclusions, we would anticipate further cuts to our estimates. However, we believe Apple’s importance to both the China technology ecosystem through its Foxconn partnership combined with its importance as a leading U.S. company, we anticipate Apple should be able to navigate the tariff issues with potentially minimal impact. Therefore, despite our lowered estimates and price target multiple to 15x 2020 EPS from 17X.

CFRA’s Angelo Zino maintained his Buy rating on Apple with a $235 price target after the WWDC showed the operating system updates and a new iPadOS. Zino likes the iOS additions, such as dark mode, map improvements, photo editing and portrait effects, speed improvements and a focus on privacy. The only hardware announcement was a new top of the line Mac Pro priced at $5,999.

Merrill Lynch noted that the key takeaway from WWDC was that the new focus on privacy sets Apple apart. The firm’s Wamsi Mohan reiterated a Buy rating and a $235 price target. That report sees a stabilization of iPhones, capital returns, a ramp in services and potential new products all supporting Apple. On the privacy angle, Mohan said:

The company has positioned iOS13 as having a significantly better privacy experience than competitors. Apple is enabling users to take back control of privacy from apps and tracking (via location services, Bluetooth, IP address, etc.). More importantly, Apple is simultaneously setting itself up to take share from “single sign on” services provided by Facebook and Google with its “Sign In with Apple” tool, which will allow users much greater control over what information is shared (e.g., e-mails). We view this move as destructive to the data gathering and analytic companies whose business models are based on tracking detailed user information.

Credit Suisse’s Matthew Cabral maintained just a Neutral rating, but the firm has a $209 price target, which still implies upside. The Credit Suisse report was positive on incremental enhancements to iOS 13 coming this fall and separating out its iPadOS from iOS, performance improvements, Dark Mode, QuickPath, updates to Photos, improved Apple Maps and other points.

On May 30, Morgan Stanley maintained its Overweight rating but lowered its target to $231 from $240. Back on May 28, ahead of the regulatory and WWDC event, Citigroup maintained its Buy rating on Apple while lowering its target price to $205 from $220.

Apple shares traded up almost 2.9% at $178.28 on Tuesday, in a 52-week range of $142.00 to $233.47. The Refinitiv consensus price target was $216.17 ahead of these calls. Apple’s market cap was last seen at roughly $826 billion, after having been the first company to hit a $1 trillion market cap.


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