Data points from Apple’s supply chain continue to suggest that iPhone units may not be as high as initially expected in the next couple of quarters. However, as is typically the case with Apple Inc. (NASDAQ:AAPL), analysts remain just as bullish as ever, saying that near term iPhone units don’t really matter as much as the company’s long term performance.
One analyst has set a one-year price range for Apple shares of between $90 and $159 per share – depending on what the company does before the end of the 2016 calendar year.
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Apple shares could hit $159 or $90: Raymond James
Raymond James analyst Tavis McCourt said in his Dec. 16 report that he has reduced his estimates for fiscal 2016 starting with the March quarter as a result of the numerous weak supply chain data points. However, he believes that these data points have already been priced into Apple shares following their peak this year and underperformance so far in the December quarter. He noted that the last time Apple stock moved into a downturn, the stock bottomed out in the June quarter after management disappointed investors with weak March and June quarter guides.
McCourt has a Market Perform rating and no price target on Apple stock, but he thinks it could rise to $159 per share if the company is able to surpass his earnings per share estimate for 2016 by 10% and reach an S&P 500 P/E. However, if Apple’s earnings miss his estimates by 10% and shares reach a valuation of eight times P/E excluding cash, then the stock could plunge to as little as $90 per share next year, he believes. His fiscal 2016 non-GAAP earnings estimate is currently $9.16 per share, down from $9.33.
12 million iPhone shortfall?
A common theme among analysts is to build up expectations for iPhone units, bullishly saying that iPhone sales are going very well. And then when data points that suggest they were wrong start coming in, they automatically tell investors that all is wrong and it doesn’t matter that Apple didn’t sell as many iPhones as they previously thought it would.
In a report dated Dec. 15, Stifel analyst Aaron Rakers and his team noted that Apple supplier Dialog Semiconductors cut its revenue guidance for its December quarter to between $390 million and $400 million, which is down from the previous guide of between $430 million and $460 million. They specifically said their mobile division is to blame for the weakness, and Rakers estimates that Apple contributes more than 75% of Dialog’s total revenues and possibly as much as 90% of Mobile revenue.
Rakers suggests that the reduced guidance may indicate that Apple may sell 12 million fewer iPhones during the December quarter than was previously expected. He also points out that historically, Dialog’s Mobile revenue has had a high correlation rate with Apple’s iPhone shipments.
Apple price target cut
Dialog Semi isn’t the only Apple supplier to report numbers that are troubling for Apple’s iPhone sales as recent monthly reports from other key suppliers also suggest weakness in the current lineup. The company has also taken to advertising its latest iPhone models on its App Store when owners of older iPhone models open it, which could mean that it’s somewhat desperate to boost unit sales.
Baird analyst William Power said in his Dec. 15 report that he has reduced his iPhone unit and earnings per share estimates slightly to reflect the comments from Apples supply chain. He has also trimmed his price target from $155 to $150 per share. However, he doesn’t put much stock in data points from the supply chain, and he prefers to look forward to next year’s iPhone 7 cycle, which he expects to be stronger than the iPhone 6s cycle. He noted that only 30% of iPhone users have upgraded to the newest iPhone 6s models, so he still sees “significant” upgrade opportunities.
Looking into next year, he’s also positive on an updated Apple Watch and a spring capital return program. He also likes the idea of a streaming TV service, which Apple has been rumored to be working on for quite some time, although he notes that the latest rumors suggest that the service has been delayed yet again.
iPhone installed base to reach 615 million: Credit Suisse
In their report dated Dec. 15, Credit Suisse analyst Kulbinder Garcha and team said while Apple’s supply chain woes indicate pressure in the near term, they expect the iPhone installed base to eventually reach 615 million, noting that over the last year, it has increased 24%. They also remind investors of Apple’s new installment plans, which they expect to drive more units in the long term.
Additionally, they add that Apple’s recent guidance for capital expenditures and purchase obligations indicate that there could be as much as 25% upside for their iOS units. They believe this is evidence that Apple is preparing to launch a refreshed 4-inch iPhone in the first half of 2016. They’re estimating 222 million iPhone units for calendar year 2016.
Although right now they are not including the rumored iPhone 6c in their estimates, they believe it could add as much as 62 cents to Apple’s earnings per share and push units up to 265 million eventually, even with a 4% cannibalization rate.
Shares of Apple fell by as much as 1.25% to $109.11 per share during regular trading hours today.