AP
Hargreaves and team cut their price target to $127 from $129 based on "uninspiring" iPhone 7 demand. The analysts still give the stock an "overweight" rating.
"While we believe Apple has slightly reduced its forecast to suppliers, the change is not drastic and is mostly a return to forecasts in place prior to an increase in October. Nonetheless, we are slightly reducing our [December quarter] and [fiscal 2017] iPhone estimates to 77 million and 225 million, which puts us roughly in line with consensus," Hargreaves writes.
Apple stock was down 0.47% in mid-day trading.
Other issues that Pacific Crest analysts see with Apple stock include the strong dollar, president-elect Donald Trump's possible trade policies, and the possibility that next year's iPhone 8 might cost more than older iPhones, hurting Apple's margins.
They warn that Apple stock could be driven higher depending on how much it costs Apple to build next year's iPhone.
At this point, early reports indicate next year's top-of-the-line iPhone might have a new kind of screen as well as other new features that could lead to a more expensive device to manufacture, KGI Securities analyst Ming-Chi Kuo and the WSJ have written in previous reports.
If it ends up being more affordable than expected, that could be a boon to Apple's gross margins, which is a current investor concern over the next year.
Here's Pacific Crest's bull case for Apple:
- Bull-case scenario to $149.
- iPhone units rebound more sharply than expected in the iPhone 7 cycle.
- Demand for the Apple Watch exceeds our expectations. New iPad SKU drives modest upside to our estimates.
- Growth in services revenue improves sentiment.
- Multiple expands to 7.5x EV/EBITDA using a bullish F2017 EBITDA estimate of $80 billion.
Here's their bear case:
- Bear-case scenario to $91.
- Lower replacement rates drive iPhone unit growth of 5% in F2017.
- Android regains share in emerging markets.
- 500 basis point incremental mix shift to iPhone SE compresses gross margin by 50 basis points relative to our current estimates.
- Multiple declines to 4.5x EV/EBITDA on a bearish F2017 EBITDA estimate of $67 billion.
"We continue to believe Apple is too cheap," Hargreaves writes.
