| | | I understand your anxiety but, from a contrarian perspective, I like the set-up from current levels. Unit numbers are down big and Apple is at $111. In late October, Tim Cook suggested iPhone growth would be 8-11% on a constant currency basis. That means he forecast 8-11% unit growth if ASPs are flat. Imagine what the share price will do on January 18 AM if Apple comes in consistent with TC's forecast.
December 16, 2015, 11:04 A.M. ET
Apple Estimates Pile On: Everyone into the Pool
By Tiernan Ray
Shares of Apple ( AAPL) are down 14 cents at $110.35 as more analysts pile onto the iPhone estimate cut campaign, joining those who opined on Monday and Tuesday.
There are even some price target cuts today, though the bulls urge looking past these estimate cuts to the next iPhone cycle.
Credit Suisse’s Kulbinder Garcha, who just yesterday had urged caution when tampering with Apple estimates, today cuts again for the December and March quarters’ sales estimates, and for full-fiscal year 2016.
But Garcha, who has an Outperform rating on Apple shares, and a $140 price target, again advises “longer-term, we continue to believe Apple will sustain high retention rates, continued installed base growth, and the optionality of a smaller 4-inch iPhone.”
Garcha describes his “checks”:
Our own checks and Dialog’s recent pre announcement, as well as research from our Asian team, suggest a deeper cut in December and March production volumes. The cuts seem to be driven by weak demand for the new iPhone 6s, as overall builds are now estimated to be below 75-80mn units for the December quarter and between 45-50mn units for the March quarter. In light of this, we adjust our December and March quarters slightly to 77mn/52mn, and we have lowered our CY16 units to 214mn, from 222mn, to reflect this and assume 231mn for 2017 (8% growth y/y).
To be clear, those 77 million and 52 million units are down from 78 million and 55 million, respectively, yesterday.
And Mizuho U.S. Equity Research’s Abhey Lamba writes that “Mizuho’s Japan team continues to indicate weakness in Apple’s supply chain for iPhones.”
He thinks the consensus for March is still too high, though he doesn’t cut his own numbers: “The updated estimates call for C4Q15 units of 75mm and C1Q16 procurement estimates in the 42-53mm range with a possibility of numbers ending up closer to the lower end of the range, which would be meaningfully below current consensus sell-in number of 60mm.”
Garcha has a Neutral rating on Apple shares and a $125 price target.
Tavis McCourt with Raymond James, who has a Market Perform rating on the shares, writes that there’s “mounting evidence of weaker demand trends in Apple’s supply chain,” and he cuts his numbers for the March quarter:
There have been many notable supply chain suppliers to Apple in the last few weeks to either pre-release, report, or guide to weaker than expected results, and although we suspect there is also incremental weakness in the Android ecosystem, which is leading to said weakness, we suspect weakening y/y sell through trends for the iPhone likely play a part as well. From a sell through perspective, our data points remain quite strong in China, with modest weakness in U.S. and Europe for both iPhone and the broader smartphone market. However, our U.S. web survey suggests modestly fewer iPhone upgrades are likely in the coming 3 and 12 months than a year ago. March will almost certainly be the most difficult comp of the year for Apple, with the reported iPhone 6C likely benefitting the June quarter more fully and the iPhone 7 starting to kick in during September. We are lowering our full year iPhone unit estimate from 229 million to 224 million as our March estimate is lowered to 53 million from 58 million.
But McCourt thinks the stock already reflects some of this, and there may be relief for the shares once past the March quarter:
AAPL shares are inexpensive, and most in the investment community expect more downside risk to EPS than upside, so we don’t expect further EPS reduction on the scale of ours to meaningfully negatively impact the shares. AAPL shares peaked in April of this year and have underperformed since as the market has grown more fearful of the decelerating/declining y/y trends Apple will likely phase during its iPhone 6S cycle. However, at some point, these will be the easy comps that the iPhone 7 will grow against, and timing when the market starts discounting a return to growth is hard to know for sure. We would note that in the last “weak” iPhone cycle for Apple, the shares bottomed in calendar 2Q of the following year, so barring a severe dislocation in the share price, that is our expectation this time around as well.
And William Power with R.W. Baird, who has an Outperform rating, cuts his price target by $5 to $150 after cutting March estimates:
Driven by recent supply chain comments and a measure of conservatism, we are lowering our forward iPhone estimates modestly. FQ2 (March). Lowering our iPhone forecast from 63.9 million units, which had been above consensus of roughly 61 million, to 59.0 million, slightly below consensus. FY’16. Lowering our iPhone forecast from 243.8 million to 234.7 million, implying 1.5% YOY growth.
Power cautions that sentiment will likely quickly move past March to the impending arrival, presumably, of an “iPhone 7? later in the year:
Importantly, while much of the Street is currently fixated on potential FQ2 (March) guidance, we expect the narrative to quickly shift to iPhone 7 and a potentially stronger upgrade cycle. We continue to view Apple’s overall positioning and valuation as attractive.
UBS’s Steve Milunovich, who has a Buy on Apple, cuts his target to $130 from $140 on the stock, cuts both December and March numbers:
Our second read on the Dec quarter based on search volumes shows demand for 71mn units, down from last month’s reading of 75mn. In the Sep quarter the Monitor overestimated sales by 7mn units. Because we think some fulfillment of this demand will shift into Dec, we only are lowering our estimate from 78mn to 75mn units. We also are reducing our March quarter iPhone estimate to 56mn vs 61.2mn a year ago.
And TheFlyontheWall reports that Merrill Lynch’s Wamsi Mohan cut his estimates for March to 51 million units form 58 million, and cut his full-year numbers to 220 million units from 230 million. |
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