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JPMorgan Issues Apple Alert: Firm 'Cautious' On Supply Chain, Slow Buyback And Macros

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  • Apple Inc. (NASDAQ: AAPL) shares have been on a downward trajectory for the past couple of months, and have lost 14 percent since October 27.
  • JPMorgan’s Rod Hall maintained an Overweight rating for the company.
  • The company’s FQ1'16 could reflect slower buyback, supply chain weakness and poor macro data, Hall stated.

Analyst Rod Hall projected ~76m iPhone shipments in FQ1 and ~55m units in FQ2, while the general buy-side expectations are in the low 70s for FQ1 and ~50m for FQ2. Hall mentioned that ~50m iPhones for FQ2 would generate total revenue of ~$52bn, representing a 10 percent y/y decline, which is around 6 percent below the estimate of $55.5bn and consensus.

Momentum in 4G net adds at China Mobile recovered towards the end of FQ1. Growth in net adds was at 33 percent y/y in December, which is higher than the 19 percent recorded in November, but lower than the 46 percent y/y in October.

Between October 9 and December 28, Apple is estimated to have bought back about 571,000 shares per trading day in around 54 trading days. This compares with last year’s figures of about 647,000 shares per workday in around 61 trading days. “We are slightly concerned that our total repurchase estimate of ~$7.5bn for FQ1 (+49% Y/Y) may turn out to be optimistic,” Hall wrote.

“Our Asian supply chain analysts believe that build plans for FQ2 have likely stabilized in the 40-45m range now, down from 45-50m in December. If correct we believe this would likely be due to higher inventory levels exiting FQ1,” the analyst said. He added that the Europe and US supply chain results were soft.

iPhone ASP could be under pressure due to continued mix shift toward the lower-priced iPhone 6, away from the iPhone 6s. This shift may have been worsened by macro-driven weakness in demand. Moreover, currency headwinds could have a negative impact on FQ1’16 results.

Latest Ratings for AAPL

DateFirmActionFromTo
Apr 2017Morgan StanleyMaintainsOverweightOverweight
Apr 2017Credit SuisseMaintainsOutperformOutperform
Apr 2017Pacific CrestMaintainsOverweight

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