Apple’s stock is down after profits. Why analysts are always optimistic.
rarely lays a profit egg, so it’s no surprise that the stock is trading lower after the company posted sales about $ 1.5 billion lower than Street’s estimates. But analysts see this as a transitional event, directly linked to component shortages, with minimal long-term implications.
At the root of the problem is Apple’s disclosure that September quarter sales were cut by around $ 6 billion due to a combination of chip shortages and Covid-related manufacturing issues in Asia. from the South East.
In recent weeks, there have been numerous reports that the company has been struggling to get enough camera modules for high-end versions of the iPhone 13 from its supplier in Vietnam, where travel restrictions have hampered the operations of factory. CEO Tim Cook told investors manufacturing issues had been resolved, but declined to guess when the parts situation would improve. The company said the revenue impact of supply issues would be greater this quarter than the September quarter.
Analysts can do some arithmetic and they conclude that Apple would have crushed the revenue and profit estimates for the quarter had it had the goods to sell. Earnings per share, reported at $ 1.24, was very much in line with Wall Street’s expectations.
Since there are usually no good substitutes for most Apple products – it’s hard to imagine a lot of people buying Android phones rather than waiting a few extra weeks to get an iPhone 13 Pro Max. – the view on the street is that Apple is dealing with delayed sales, not destroyed demand. This sets the stage for good quarters in March and beyond.
“We don’t think this is a change in thesis because competitors are also experiencing shortages,” Citi analyst Jim Suva said in a research note on Friday. “Simply put, the demand for Apple products is significantly greater than the supply… We don’t think the failure is a change in thesis because it was driven by supply constraints, the channel inventory is lower. normal, services continue to perform well and Apple’s installed base is still growing. ”
He kept his buy rating on the stock, with a target of $ 170 for the price. As of Friday morning, the stock was down 3.5% to $ 147.20.
Morgan Stanley’s Katy Huberty also kept her overweight rating on the stock, although she reduced her target price to $ 164 from $ 166. Huberty predicts that “as regulatory and supply chain headwinds dissipate, investors will begin to refocus on what we believe to be a strong fundamental outlook.”
She said growth in the services sector was stronger than expected and argued that management comments for the December quarter suggest earnings will meet consensus estimates despite the large supply deficit. Apple is set for a stronger-than-usual March quarter given the growing order backlog of products, Huberty said.
Atlantic Equities analyst Ianjit Bhatti maintained an overweight rating and a target of $ 190 on the stock, noting that based on the FY2022 estimates, the stock trades at a premium of 30% compared to the S&P 500, while “consumers”
100% premium trade. He agreed that there was little risk that the tight supply would lead to many lost sales in the long run.
“While some giveaways during the holiday season are perishable, we anticipate that the vast majority of iPhone shipments can be made later in the year, with loyal customers unlikely to make the switch to the Android ecosystem even with extended delivery times, “he wrote. .
Write to Eric J. Savitz at [email protected]