When it comes to Apple, analysts usually agree that it’s a Buy, although one analyst has made a key contrarian call on the iPhone maker. He agrees with the vast majority on Facebook, however, and goes so far as to say that the social network might outperform for the next ten years.
His comments come the same day JPMorgan analysts slashed their price target for Apple stock and one of its suppliers, Jabil Circuit, reported disappointing earnings results and gave a weak outlook.
A vote to short Apple
Saxo Bank equity strategist Peter Garnry told CNBC that he believes Apple won’t be able to do well in China because its iPhones are too expensive. Meanwhile he said Samsung looks to be in a better position to handle changes within the smartphone market.
Investors cheered Apple’s deal with China Mobile to bring the iPhone to the biggest mobile network in the world’s largest market in 2014. Despite that, the iPhone has not done well in China, although there were early signs of success. The most recent earnings report shows that Apple’s fortunes there have changed quickly as Mainland China revenues tumbled 26% year over year in the company’s second fiscal quarter.
Apple getting “squeezed in China”
Garnry told CNBC that commoditization will continue within the smartphone market, and consumers will become more sensitive to prices over features and status, which the iPhone is particularly known for. He believes Apple misinterpreted demand in China and that this is why there is extra iPhone inventory there now. Further, he said Chinese smartphone vendors are now making devices that are 40% cheaper than the iPhone but about equal with it on quality.
“I think Apple is getting squeezed in China, I don’t think they can compete unless they really sacrifice their premium perception in the market and actually lower their price point,” he told CNBC.
He added that the big story about Apple is market share losses throughout Asia.
JPMorgan cuts Apple price target
JPMorgan analyst Rod Hall recommends Apple stock as an Overweight, just as most of Wall Street does, but today he cut his price target from $125 to $105 per share, which is one of the more bearish targets we’ve seen. He said in his June 16 report that this represents a P/E multiple of 10 times, excluding cash. Peers trade at an average multiple of 13 times.
Hall expects Apple to sell only 68 million iPhones in the December quarter, which he believes is “well below consensus.” His view runs counter to that of analysts who expect a bumper crop of iPhone sales in this year’s December quarter, even if the iPhone 7 doesn’t really have any huge upgrades. The JPMorgan analyst emphasized that weakening demand is a headwind for the iPhone maker right now, but he expects “solid earnings growth” while next year.
Facebook “undervalued”
Facebook has become as trendy on Wall Street as Apple once was and still is in some ways. However, while analyst estimates on Apple have come back down to earth, analyst euphoria on Facebook only seems to grow. The social network’s current price to earnings multiple is 70 times, but despite that, Garnry told CNBC that he believes it to be “undervalued.” The equity strategist thinks bears are “miscalculating the compound of growth” of Facebook. He also believes Facebook will outperform the market over the next ten years. His view on the social network stands in stark contrast to short-seller Andrew Left of Citron Research, who believes it is too expensive.
Apple shares edged higher by as much as 0.5% to $97.18, while Facebook stock declined 0.59% to $113.92 during regular trading hours on Thursday.
