A third consecutive quarter of declining revenue from Apple has some Wall Street analysts jittery about the stock. With its valuation extended, and iPhone sales slowing, there are at least two good reasons not to buy the dip.
Apple
(ticker: AAPL) sales fell slightly in the June quarter and its guidance for revenue to continue on a similar trajectory in the current quarter came as a disappointment.
Apple shares were down 2.9% in premarket trading on Friday; as of Thursday’s close, the stock had gained 47% this year.
D.A. Davidson’s Tom Forte said Apple’s forecasts didn’t provide enough reason to back the stock at its current premium valuation. He also said that while the coming iPhone 15 is a cause for excitement, wireless carriers may not subsidize the smartphone as much as they have recent Apple models, when they were looking to encourage use of 5G networks.
“Overall, we will be monitoring the performance of the iPhone 15 but were encouraged by comments on China and India,” Forte wrote.
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D.A. Davidson analysts lowered their target price on Apple to $180 from $185 and kept a Neutral rating on the stock.
While Apple’s expected growth in India has been a focus for some bulls, analysts at
UBS
said the often-made comparison with the company’s growth in China is wrong. They noted India’s smartphone market is roughly half the size of China’s and has lower demand for high-end devices.
“While we expect growth in a market like India over the long term as regional economics improve, we believe it is unlikely Apple achieves the magnitude of success from a unit basis it has had in China over the next several years,” UBS’s David Vogt wrote.
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Vogt kept a Neutral rating on Apple stock and a $190 target price, noting the shares are already trading at a 50% premium to the S&P 500.
Other analysts are concentrating closer to home. KeyBanc analysts said Apple’s latest forecasts suggest American smartphone users aren’t upgrading their devices as fast as expected.
“We fear the U.S. upgrade cycle is coming to a halt, upgrade rates are at record lows, and likely to result in weak Americas revenue,” KeyBanc’s Brandon Nispel wrote.
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Nispel kept an Overweight rating on Apple stock and a $200 target price. However, he noted the valuation is beginning to look stretched at an enterprise value multiple of 21 times its expected Ebitda in 2024, compared with a three-year average of 18 times.
The case for the bulls is to look beyond the current quarter and concentrate on the launch of the iPhone 15 as well as growing services revenue, which climbed 8% in the quarter from the same period a year earlier.
“Overall, we would be buyers on any weakness as this is just the drumroll to the mini supercycle iPhone 15 about to take hold in mid September,” Wedbush’s Daniel Ives wrote.
Ives reiterated an Outperform rating and raised his target price to $230 from $220.
Write to Adam Clark at [email protected]
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