Apple Inc. (NASDAQ:AAPL) stock could be on the verge of losing its status as a Wall Street darling. The company has increasingly been the focus of bearish analyst reports amid concerns that iPhone demand is weakening. AAPL stock received its second analyst downgrade in a week, although one other firm actually raised its price target because of bullish expectations for 2019—and the company’s cash repatriation plans.
Another warning about weak iPhone demand
In a note on Monday, Wells Fargo analyst Aaron Rakers said he doesn’t expect Apple to report upside to iPhone shipments when it releases its next earnings report on Feb. 1. He expects the iPhone maker to report earnings of $3.80 per share on $86.5 billion in sales for the December quarter, which he said is in line with the consensus. AAPL guided for revenue of between $84 billion and $87 billion with implied earnings of $3.59 to $3.83 per share.
Rakers estimates iPhone shipments at 81.1 million with an average selling price of about $760, and he said the Wells Fargo iPhone Index implies a result in the high-70 million to low-80 million range. He added that although APPL probably saw its “typical smartphone shipment share increase within China,” overall smartphone shipment data points during the December quarter were “notably weak.” This is particularly interesting because Morgan Stanley has been specifically emphasizing the strength of Apple shipments in China. This could pose a problem if this is the only good thing to report about the company’s December quarter.
The Wells Fargo analyst also remains below consensus on March quarter sales at $66.5 billion and $2.71 per share in earnings. The Street currently estimates $68.2 billion in sales and $2.89 per share in earnings.
AAPL stock downgraded… again
In a note this morning, Atlantic Equities analyst James Cordwell downgraded AAPL stock from Overweight to Neutral, citing weak iPhone sales. However, he also maintained his price target of $190 per share. The firm also cited limited visibility into the potential of future iPhone cycles “and emerging challenges to the smartphone’s dominance at the centre of consumer technology.” As a result of these factors, he expects AAPL’s stock multiple to compress.
In perhaps even more concerning news regarding iPhone demand, well-connected KGI Securities analyst Ming-Chi Kuo said that the iPhone X has been such a disaster that the company is planning to cancel it this summer. Additionally, Longbow analysts downgraded AAPL last week as well, citing the “good, not great iPhone cycle.”
Focus on AAPL’s capital return plans
Rakers said in his bearish note on AAPL stock that he remains focused on the company’s capital return update, and that’s generally what the Street is doing right now due to the apparent lack of iPhone sales. Several analysts agree that most of what AAPL said it was planning to do with the cash it will repatriate was probably going to happen whether or not any cash is repatriated. However, that hasn’t stopped AAPL watchers from offering some extra suggestions. Rakers suggests that the company could boost its dividend by 30% rather than the 11% it has averaged over the last four years.
Bank of America Merrill Lynch analyst Wamsi Mohan boosted his price target for AAPL in a note to investors last week, moving it up to $220 from $180 per share. He noted that bears are focusing on the weakness in the company’s iPhone cycle, but he prefers to take a long-term view of its earnings potential. As a result, he shifted his valuation of AAPL to 2019 estimates from 2018 numbers.
Despite his preference for next year’s numbers, he still sees this year as a bullish one for AAPL because he believes it could bring the biggest cash repatriation in the firm’s history at $240 billion.
AAPL stock slipped into the red early on Monday, falling by less than 1% to as low as $176.60.