Why Apple's Coronavirus Warning May Be Better Than Expected
The Street took a big bite out of Apple Inc. (NASDAQ:AAPL) Tuesday after management reported that the coronavirus, among other factors, would likely drive a second-quarter sales miss. COVID-19 has “temporarily constrained” supply, shuttered distribution sites and pressured Chinese iPhone demand.
It Could Be Worse
Cascend Securities is less concerned about supply chain disruptions than about waning demand.
“There is definitely less economic activity in China because of the virus,” Cascend Chief Investment Strategist Eric Ross wrote. “…If it gets much worse, it will impact global demand for many categories, including Apple.”
For now, though, the pain seems manageable. Apple noted the revenue impact could near $4 billion — a figure far more palatable than Cascend Securities had expected.
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A Peak Down The Street
Piper Sandler called the share weakness “a temporary situation,” while Baird considered it a buying opportunity.
“Absent a longer running Coronavirus impact, we believe the broader story remains very much intact, and would be buyers on weakness,” Baird analysts wrote in a report.
Morgan Stanley noted that its full-year estimates were unshaken, but it adjusted its near-term estimates in anticipation of a revenue shift from the second quarter to the third and fourth.
“We are buyers on weakness and fully expect Apple to take advantage of any pullback to repurchase more shares,” they wrote.
Cascend suspects that global COVID-19 infections will peak in late March. Apple currently plans a gradual reopening of its retail sites. It will ramp factory production more slowly than expected.
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