This was despite the fact that Apple beat out the Street’s predictions by 20% in the September quarter with revenue of $62.9 billion. The Street predicted $61.57 billion. EPS was $2.91, a 40 percent increase year-over-year. Wall Street expected only $2.78 per share.
So what caused investors to step back? Apple guided revenue for the holiday season of between $89 and $93 billion. With Wall Street expecting $93.02 billion, the middle-of-the-road guidance of $91 billion fell short of expectations, perturbing investors.
Meanwhile Apple also announced it will no longer be releasing its unit sales figures for iPhones, iPads and Macs. One analyst referred to the news as a “jaw dropper,” as “Apple is at the critical juncture where higher ASPs [average selling prices] are making up for slower unit sales, which remains the worry.”
In other words, if unit sales aren’t released then higher selling prices can mask the fact that unit sales are slowing.
A further blow
As if that wasn’t enough, two ratings downgrades caused a further blow to share prices. Indeed, the stock is now trading down 3% since last week.
The latest downgrade is from Rosenblatt Securities. It follows the decision of Bank of America Merrill Lynch to downgrade the stock on Friday.
“Calendar fourth-quarter guidance reflects our cautious view on weaker than expected sell-through and production reductions for iPhone XS/XR,” explained Rosenblatt analyst Jun Zhang (Track Record & Ratings). We “downgrade to neutral.”
The analyst continued: “The iPhone Max has been selling well and will most likely help increase average selling price and gross margin, but we believe it will be difficult for ASP to grow in the second half of calendar-2019.”
AAPL Supporters Stay Firm
However, top-ranked Wedbush analyst Daniel Ives (Track Record & Ratings) is staying firm on his bullish thesis.
He has reiterated his Buy rating with a Street-high price target of $310. From current levels this indicates extremely compelling upside potential of over 53%.
Ives gave the following reason for his confidence in AAPL’s outlook: “Our core bull thesis does not change on the story and to some extent is emboldened by the ~$800 ASP story and a robust services business poised to hit $50 billion+ in FY20.”
The Street continues to be ‘laser focused’ on the demand trajectory for iPhones into 2019, the analyst says- and sees Street guidance for iPhone shipments of ~220 million units as potentially conservative.
“Based on our analysis we believe 350 million iPhones are in the “window of opportunity” to upgrade over the next 12-18 months with Apple needing to capture a majority of these units as part of this upgrade cycle to make a clearly successful iPhone product cycle in 2019.”
Look to Apple Services
Ives points instead to Apple Services as a game-changer for the stock.
“We caution investors not to lose sight of the massive metamorphosis on the horizon at Apple being led by the services business,” Ives wrote. “We continue to encourage investors to see the forest through the trees on this name and view last week as the first step in the ultimate re-rating of the stock higher over the coming years.”
The Wedbush analyst predicts the company’s Services business, which includes its App Store, Apple Music, and Apple Pay offerings, will grow 20% annually. At this rate, sales could surge to over $50 billion by fiscal 2020.
Apple now has an active installed base of 1.3 billion devices that can be monetized.
While Ives may be the most bullish analyst out there, he isn’t alone in his optimism on the stock. In the last three months the stock has received 17 Buy ratings, 11 Hold ratings and 1 Sell rating. These are all from the Street’s best analysts. See what other Top Analysts are saying about AAPL.
This ‘Moderate Buy’ consensus comes with a $237.55 average price target- 18% upside from current levels.
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