Apple Stock Draws More Wall Street Caution From Escalating China Trade War -- Barrons.com
DOW JONES & COMPANY, INC. 11:11 AM ET 5/28/2019
Symbol Last Price Change | AAPL | 178.95 | -0.02 (-0.01%) | | QUOTES AS OF 11:12:20 AM ET 05/28/2019 |
Anticipating significant fallout from the U.S.-China trade war, Wall Street analysts continue to trim their expectations for Apple(AAPL) iPhone sales. The issue isn't access to components, or the direct impact of tariffs, but instead the growing consensus that China's consumers will respond to the aggressive U.S. strictures on Huawei Technologies with a burst of nationalist pride and shift their allegiance to domestic phone brands.
Over the weekend, Citigroup analyst Jim Suva slashed his outlook for near-term iPhone sales, while trimming his price target on Apple(AAPL) stock . "Our independent due diligence now shows a less-favorable brand image desire for iPhone and this has very recently deteriorated," he wrote in a research note.
Suva lowered his forecast for iPhone unit sales in China for the second half of Apple's(AAPL) fiscal year ending in September, by 50%, to 7.2 million units; his overall iPhone forecast for that period drops to 73.1 million units, from 80.4 million. For fiscal 2020, he likewise cut his China iPhone sales forecast exactly in half, to 16.8 million units, reducing his total estimate to 170.3 million units, from 187.1 million.
The analyst noted that Apple(AAPL) could partially offset expected weaker China sales by taking some share Huawei is likely to lose in Western Europe and other markets, although he thinks it more likely that other Android smartphone brands take most of that share.
Read More: Sell Apple Stock Before the Trade War Escalates
While Suva maintains a Buy rating on the stock, and notes that the stock is down 15% over the last 30 days, he trimmed his target price on the stock to $205 from $220, asserting that earnings consensus over the coming months is likely to "recalibrate lower."
Cowen analyst Krish Sankar weighed in on the China iPhone issue this morning. "Apple's(AAPL) iPhone, iPad, and Mac systems [in China] are at risk of experiencing demand destruction due to collateral damage from the sales ban to Huawei," Sankar writes in a research note.
Sankar estimated Apple's(AAPL) fiscal 2020 earnings could be trimmed by 1% to 8% from the China demand issue, based on 5% to 30% unit-demand destruction for all hardware products sold into China. He noted that iPhone sales represent about 60% to 65% of all Apple(AAPL) sales into the Greater China region. The analyst added that "in the extreme case of 100% demand destruction in China," Apple(AAPL) earnings would be reduced by about 26% in FY 2020. He calculated that every 10% of demand destruction in China across all the major hardware segments could affect Apple's(AAPL) valuation by about $3 a share -- and that in the worst-case scenario where China hardware sales go to $0 -- valuation would be impacted by about $45 a share.
Sankar nonetheless maintains an Outperform rating and $245 price target on Apple(AAPL) shares.
It's worth noting here that Apple(AAPL) late last year ended its previous practice of disclosing unit sales for iPhones, iPads, and Macs, so monitoring the accuracy of the Street's iPhone forecasts obviously will be a little challenging. What we do know is that revenue for iPhones has been sliding hard, as replacement cycles extend and some consumers await the arrival of 5G hardware in 2020 or later. For iPhones, sales in the fiscal second quarter were $31.1 billion, down 17% year-over-year; for the first half of fiscal 2019, iPhone sales were $83.0 million, down 16%. By contrast, Mac sales on a dollar basis were down a more modest 5% in the fiscal second quarter, while iPad sales were up 22%. Wearables, home and accessories (including the Apple Watch, Beats headphones, Apple TV and various other things) were up 30% and services were up 16%.
In early trading Tuesday, Apple(AAPL) shares are down 29 cents, or 0.2%, to $178.68.
Write to Eric Savitz at eric.savitz@dowjones.com |
