Apple Analysts Think We’re Heading for a ‘Sustained iPhone Downturn’

(Bloomberg) -- Apple Inc. analysts cut their price targets on the stock Friday, fearing weakness in the company's most important product line after it said it would stop reporting how many iPhones it sells each quarter.

The reduced disclosure “raises the specter of a sustained iPhone downturn,” wrote Nomura Instinet analyst Jeffrey Kvaal (neutral), who cut his target to $185 from $215 (avg PT $234). Kvaal added that results in other units “were also generally uninspired,” leading him to lower his earnings expectations for the next two years. Apple shares opened down 5.7 percent and fell the most in more than 2 years before paring some losses in early trade.

BofAML downgraded Apple shares to neutral from buy and cut its price target to $220 from $235, writing that “we are likely to see further negative estimate revisions.” Analyst Wamsi Mohan said the stock represents a "significant" long-term opportunity, but that “some level of investor concern on lack of unit disclosure” will act as a near-term risk.

Apple late Thursday said it would stop providing unit sales for iPhones, iPads, and Macs in fiscal 2019 as part of a transition to more of a services business. The announcement came in the release of its fourth quarter results, where it said iPhone unit sales were about the same as a year earlier and it gave a tepid outlook for its holiday quarter.

The lack of disclosure is "fueling fears the company has something to hide," wrote Jefferies analyst Timothy O'Shea, forecasting iPhone declines of 1 percent through fiscal 2020. But he repeated a buy rating and $265 price target, saying Apple "intends to tell a compelling Services story, which we believe has 2x higher gross margin than hardware and improving."

Morgan Stanley lowered its target to $226 from $247 but said Apple's disclosure change was a good one for the company's long term.

"The reality is that as the smartphone market matures, users are paying up for higher quality devices that last longer making units less of an indicator of trends than revenue," wrote a team of analysts led by Katy Huberty. "Removing the focus on units helps shift the investment community discussion toward Services, a positive in our view."

Other analysts also found reason for optimism. FBN Securities raised its price target by $10 to $240, suggesting that some of the weakness in Apple's outlook “could simply be due to the timing of the new iPhone availability,” as the iPhone XS and XS Max were launched in September, compared with the iPhone X's December 2017 debut. Analyst Shebly Seyrafi recommended buying pullbacks in the stock.

According to data compiled by Bloomberg, 30 analysts have a buy rating on Apple while 17 rate it a hold and two rate it a sell. Shares of Apple are up more than 31 percent in 2018, through the Thursday close, versus 2.5 percent for the S&P 500.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Brad Olesen

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