Apple Stock: Analysts Are Getting Less Bullish

Apple Stock

Apple Stock (NASDAQ:AAPL)

The crucial part of the holiday shopping season is now upon us. Christmas is only a little more than four weeks away now that Black Friday has passed. Because the current quarter generates the most revenue of any quarter during the company’s fiscal year, this is the busiest time of the year for technology giant Apple (NASDAQ:AAPL). Sadly, one ghost from a recent Christmas has returned and is threatening this holiday season.

Longer Shipping Times May Hurt Holiday Sales

China’s zero-covid policy is imposing restrictions in some of the country’s critical areas as the coronavirus is once more spreading throughout the nation. Large-scale demonstrations have occurred at Foxconn’s Zhengzhou plant, a key iPhone manufacturing facility. Wedbush analyst Dan Ives reported last Friday that inventory levels in many stores as we approach December appear to be 25% to 30% below average, suggesting that there may be significant shortages of the iPhone Pro 14. Apple has already expressed concern that the longer-than-anticipated shipping times for the iPhone Pro will hurt holiday season sales.

This year, lower than usual Pro model inventories are a double-negative. First, Apple separated the top-of-the-line models further by not including its most recent chipset in the two base models of the smartphone. This has shifted the sales mix in favor of the Pro versions. The second point is that this December’s fiscal Q1 is 14 weeks long due to how the calendar falls, ending on December 31st. Christmas marked the end of the previous period, giving this year more time to generate sales.

Amit Daryanani of Evercore discussed the financial effects of recent iPhone shutdowns in a different analyst note that also addressed the stabilization of iPhone lead times. The analyst now believes that the amount could be double the firm’s previous estimate, which called for about $3 billion of sales to be pushed into the March quarter. I’ll discuss overall projections shortly, but I believe that the street still needs to consider a $6 billion headwind. That would be similar to what we’ve seen recently from Apple, where supply shortages across the board pushed the top line down by a few billion dollars each quarter.

Unfortunately, China’s covid problem will lead to more problems than just a lack of production. Retail sales in the nation unexpectedly fell by 0.5% in October, which is likely to last well into the first quarter of 2019. With a decline of 8.9%, communications equipment was among the worst categories. Greater China was Apple’s fastest-growing geographic segment in the first quarter of last year’s fiscal year, but it wouldn’t be surprising to see a decline in sales there in the December quarter of this year. 

Apple was already dealing with sales challenges due to pressures on inflation and consumer spending caused by rising interest rates. Analysts anticipated this year’s holiday season to see a 3.5% increase in revenue when the company released its fiscal Q4 results in October. When you consider the additional week this year, that number implied that sales would be flat. However, the average revenue estimate had already decreased by almost $2.5 billion as of Sunday. Given the extra time, the current consensus of $125.85 billion implies a reported growth rate of only 1.54% or a slight decline.

Analysts have become slightly less bullish on Apple stock throughout 2022 as the markets have grown concerned about consumer spending due to increased interest rates and reduced the Fed’s balance sheet. The average price target reached over $191 earlier this year, but it has since fallen almost 10% and is now hovering around $174. Currently, the name’s overall street rating is at a 14-month low. We’ll have the highest percentage of Hold/Sell ratings since February 2021 if one more analyst changes their recommendation from a Buy or Strong Buy to a Hold or even a Sell.

I wouldn’t say I like how things stand now when I consider Apple shares. The stock has been making a series of lower highs and lower lows since the summer peak. Additionally, shares are just a few dollars above the 50-day moving average. The stock appears to have lost an additional $10 or more each time it fell below this critical technical level. The stock may attempt to retest its recent lows if the market continues to deteriorate through the end of the year.

Bottom Line

Due to China’s extremely stringent response to the pandemic and the coronavirus outbreak, the technology giant is experiencing significant disruptions in iPhone production. The sales impact for the December quarter, which may end up being in the mid-single digit billions or more, is now being estimated by analysts. When accounting for the extra week in the December 2022 period, Apple may report a year-over-year total sales decline, which will likely please the bears. I still like Apple stock, but the chart could look better now, so prospective buyers might want to hold off until we see if shares lose the 50-day moving average.

Featured Image: Pixabay @ duchu

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About the author: Stephanie Bedard-Chateauneuf has over four years of experience writing financial content for various websites. Over the years, Stephanie has covered various industries, with a primary focus on consumer stocks, cannabis stocks, tech stocks, and personal finance. This stock lover likes to invest for the long-term. Stephanie has an MBA in finance.