JP Morgan downgrades Apple stock expectations on negative macro trends, Apple Watch forecast
For all the new software platform features Apple announced this week at WWDC, including a glimpse at future iOS product capabilities and internet services enhancements, JP Morgan remains cool to the company's stock prospects for 2016.
The reason mainly has to do with larger economic trends, according to a note issued on Thursday by JP Morgan analyst Rod Hall.
"Macro demand weakness looks set to challenge fundamentals in 2016 vs. consensus expectations," he wrote in the note. As a result, Hall forecast Apple shares falling to $105 from a previous target of $125. However, he anticipated 2017 being "a significantly better year in our opinion."
He reduced Apple's estimated revenue forecast for fiscal year 2017 to $210 billion, down 1.6 percent or about $3 billion from the previous year.
Hall's forecast was particularly pessimistic for the Apple Watch, which he expected to reach less than half of its potential customer base -- 7 percent as opposed to a previously assumed 15 percent. He projected sales of 11.9 million watches in fiscal year 2016 rather than the previously expected 23.5 million -- and sales of 14.3 million rather than a previous estimate of 41.6 million in fiscal year 2017.
"We think that Apple is being penalized for market issues," he said. "We are seeing demand weaken but we think that's a broader market problem, not just an Apple-specific problem."
He also believes iPhone unit sales will remain unchanged from previous low estimates but expected a 1 percent increase in cost per unit to $659 per unit in 2016 and a 3 percent increase to $646 in 2017.
"We think we're seeing clear demand weakness there. We've already seen it develop in places like Latin America, also [Asia-Pacific]," he said.
Hall observed in the note that while Apple had handled earlier technology transitions well, like the consumer shift to touch-enabled smartphones, it had not executed on other trends like the movement to cloud and online services. Still, Apple had done better than many of its competitors and is expected to generate "solid earnings growth in 2017."
The reason mainly has to do with larger economic trends, according to a note issued on Thursday by JP Morgan analyst Rod Hall.
"Macro demand weakness looks set to challenge fundamentals in 2016 vs. consensus expectations," he wrote in the note. As a result, Hall forecast Apple shares falling to $105 from a previous target of $125. However, he anticipated 2017 being "a significantly better year in our opinion."
He reduced Apple's estimated revenue forecast for fiscal year 2017 to $210 billion, down 1.6 percent or about $3 billion from the previous year.
Hall's forecast was particularly pessimistic for the Apple Watch, which he expected to reach less than half of its potential customer base -- 7 percent as opposed to a previously assumed 15 percent. He projected sales of 11.9 million watches in fiscal year 2016 rather than the previously expected 23.5 million -- and sales of 14.3 million rather than a previous estimate of 41.6 million in fiscal year 2017.
"We think that Apple is being penalized for market issues," he said. "We are seeing demand weaken but we think that's a broader market problem, not just an Apple-specific problem."
He also believes iPhone unit sales will remain unchanged from previous low estimates but expected a 1 percent increase in cost per unit to $659 per unit in 2016 and a 3 percent increase to $646 in 2017.
"We think we're seeing clear demand weakness there. We've already seen it develop in places like Latin America, also [Asia-Pacific]," he said.
Hall observed in the note that while Apple had handled earlier technology transitions well, like the consumer shift to touch-enabled smartphones, it had not executed on other trends like the movement to cloud and online services. Still, Apple had done better than many of its competitors and is expected to generate "solid earnings growth in 2017."
Comments
The software features are definitely going to be a big improvement for Apple's ecosystem, but they're not as exciting for consumers and don't generate the same buzz as new hardware. Especially when the majority of consumers won't have access to those new features until probably late September. Seems like the perfect time to be pessimistic on Apple and keep the share price low before new hardware announcements in the Fall. Can't have the share price reflecting the actual value of the company now can we...
Considering the low PE already, that's a bit of a nonsense declaration there hey JP.
I read through the entire article and it did not indicate that "Apple is doomed", or Apple would not continue to be very profitable.... just that it was a stock with limited growth potential in next several years. Stocks with limited growth potential should get a low PE. When stocks have a high PE the market is betting it is a high growth stock and over the next few years revenue will increase fairly rapidly to match that PE. High PE stocks tend to have higher risks as well (high risk; high reward). I thought the article was fairly balanced, and that because of it's growth potential JP is not recommending it for those purposes. I believe for the next few years Apple stock will trade within a range but will not breakout.... not until they show something new that has a high growth potential. It does not mean the Apple stock is a bad stock to buy, just that it is one of those were you are investing over the long term something that you are going to get regular dividends from. Also, since it is trading low - it has limited downside (as well as upside) and this is a safe stock to buy for value... and hold over the long term.
As a customer care nothing about the stock price -- just that Apple is profitable and "is not doomed" and that it will continue to churn out new products that suit my needs. As a consumer, Apple's future is bright since they have more than enough profit to reinvest into new products.
Using the AppleWatch is a reason to downgrade the stock seems specious to me...I think the AppleWatch and Fitbit are changing the way consumers look and think about their wrists.
So it has a similiar uptake as the first generation iPhone? One day ir will have it's iPhone 6 moment because Apple keeps improving the UI. And the hardware will continue to improve.
Give me a company built on iPhone sales everyday.
Wall Street is going to discover that cloud services are a zero-sum game and no one will be spending $200-500 dollars to buy consumer software anymore.
Huh? Maybe it's the beer, but how is 646 a 3 percent increase from 659? I'm sure I'll wake up in the morning and it'll all make perfect sense.
No where in that piece did it indicate that JP Morgan analyst was recommending sell. The current price is around $98USD the target that the analyst has set is 105USD (down from $125USD). To me it sounds more like a "HOLD" than a sell recommendation -- with a potential to raise the recommendation a year from now (due to the potential of "solid earnings growth potential" that year).
It is amazing how some Apple fanboys react when someone is not at Apple's feet worshiping them.
Plus 1 more reason: Apple chooses not to publicize unfinished future "moonshot" product ideas whereas the other companies do.
You can argue both sides of the "Which is better?" debate. Perfect example: Apple Car. Apple could take the approach of publicizing now what they intend to sell by 2019. That approach is what Google and Tesla are following, and Wall Street rewards them by increasing the stock price due to anticipated future revenue. Apple chooses the opposite approach of keeping future plans secret so as not to alert their competition. Unfortunately that has a negative consequence of hurting their stock since Wall Street has nothing specific to use for forecasting future revenue growth... and by default the future growth = "zero".
Otherwise tho I get the point you wanted to make in that some companies discuss and even openly share developing technology while some are quite secretive about it. I think PED and some others would prefer Apple be a bit more forthcoming than they traditionally have been.