Apple Inc. Supply Chain Woes Earn It Price Target Cuts

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Apple shares are hovering around the price they opened 2015 at as they threaten to end the year in the red. On Jan. 2, the stock was trading at around $109.33 per share, and today, it is hovering at around $110.31 after declining by about 1% since the market opened this morning.

Will $110 remain a support level for Apple?

Bulls have been arguing that $110 should serve as a support level for Apple, and so far, the stock is holding fairly steady right around there even though it’s flirting with moving lower. Apple shares haven’t closed under $110 since October, but they remain under the $121 per share 200-day moving average. According to a report from USA Today, Apple shares are closing in on a bear market, having fallen 17% from the peak in the last year, keeping it just shy of the 20% needed to declare it a bear market.

Wall Street has been thoroughly spooked by all the negative data points from the iPhone maker’s supply chain, and investors may be starting to worry that the iPhone 6s cycle will end up being as disappointing as the iPhone 5 cycle was three years ago. Following the recent string of bad news from the supply chain, analysts from several firms have trimmed their price targets for Apple. Up and down Wall Street, firms are issuing near term warnings with promises of better days in the long term.

RBC cuts price target for Apple

In a report dated Dec. 16, RBC Capital Markets analyst Amit Daryanani and team said they cut their target for Apple stock from $150 to $140 per share but maintain their Outperform rating on the stock. They trimmed their estimates for the iPhone maker as well, pushing their March quarter iPhone unit estimate to 54 million, which is below the consensus at 60 million.

However, their estimate is still slightly higher than the supply chain data suggests, which is 50 million iPhone builds. They believe the company could be over-shipping compared to the supply chain for the March quarter to fill channels. For the December quarter, they’re estimating $76.7 billion in revenue and earnings of $3.18 per share, compared to Wall Street’s estimate of $77.2 billion in revenue and $3.25 per share.

Fiscal 2016 to be better for Apple

The RBC team believes that Apple shares will move higher next year after the company moves past the March quarter. Daryanani expects the iPhone average selling price to move higher due to consumer preferences for models with bigger screens and more memory. The analyst is also looking for the fulfillment of the iPhone 6c rumors, giving Apple a new 4-inch phone to target a lower price point, and iPad Pro sales to boost the iPad average selling price.

Further, the RBC team notes that whenever in an “s” iPhone cycle, Apple usually has a gross margin that’s about 150 basis points higher than non-“s” cycles. They are also looking for the company to continue its strong share repurchase program.

A buying opportunity for Apple stock

Goldman Sachs analyst Simona Kamkowski and team also cut their price target for Apple from $163 to $155 per share and maintained their Buy rating this week. They think the recent weakness in the company’s shares offer a buying opportunity for investors. This latest pullback came from Dialog Semiconductor’s reduced revenue guidance, which most blame on weakness in iPhone sales.

The Goldman team said this time the weakness in the iPhone cycle is different than the weakness observed in the iPhone 5 cycle in late 2012 and early 2013. At that time, Apple was losing share to Samsung, but now, Apple is dealing with the maturation of the smartphone market, difficult comparisons, and price increases as a result of currency headwinds.

They expect Apple shares to “rerate higher” as Wall Street starts focusing more on user monetization rather than iPhone unit growth. The company’s incredibly lower user base of about 500 million consumers (of whom more than 90% are repeat buyers) presents a solid opportunity in this area. Also the Goldman Sachs team notes that Apple has set a recurring revenue stream for itself in the iPhone upgrade program.

They believe the March quarter will mark the bottom in year over year growth as comparisons get easier and expect next year’s iPhone 7 cycle to push acceleration and positive unit growth for fiscal 2016.

How low will Apple fall?

USA Today also reports that Mizuho Securities analyst Abhey Lamba also cut his price target for the iPhone maker to $125 per share, adding that even that price might be too high. He thinks Wall Street’s March quarter estimates are just too high. You may remember that this week Raymond James analyst Tavis McCourt warned that the stock could fall to as low as $90 per share, depending on what happens with demand for the iPhone.

Also UBS analyst Steven Milunovich trimmed his target for Apple for $140 to $130 per share based on iPhone weakness.

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