JP Morgan downgrades Apple stock expectations on negative macro trends, Apple Watch forecast

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in General Discussion
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."
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Comments

  • Reply 1 of 24
    bkkcanuckbkkcanuck Posts: 854member
    I think JP made the right call.  I love pretty much all my Apple products, but I think the replacement cycle on iPhones is lengthening because you no longer get one "free" every two or three years under contract (not free, but cost buried).   I don't see any big blockbusters over the next few years.  That said I consider Apple a value stock and would not hesitate holding it in a long term portfolio... it might not soar like an eagle but it has a reasonable dividend and little downside (IMHO).... and if in a few years Apple has another blockbuster it is a bonus.
  • Reply 2 of 24
    bobschlobbobschlob Posts: 1,074member
    Makes the call just before markets open on quad-witching. What a shock. /s
    edited June 2016 applesauce007
  • Reply 3 of 24
    Stock Up on day.
  • Reply 4 of 24
    lolliverlolliver Posts: 311member
    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 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...




    rogifan_newpatchythepirate
  • Reply 5 of 24
    foggyhillfoggyhill Posts: 4,767member
    Apple watch is just a few percent of Apple sales so that's a weird one.
    Considering the low PE already, that's a bit of a nonsense declaration there hey JP.
    lolliverapplesauce007
  • Reply 6 of 24
    bkkcanuckbkkcanuck Posts: 854member
    foggyhill said:
    Apple watch is just a few percent of Apple sales so that's a weird one.
    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.  
    singularitymike1gatorguy
  • Reply 7 of 24
    badmonkbadmonk Posts: 747member
    So why does Apple always get the pessimistic short-term perspective from Wall Street while Wall Street takes the longterm perspective on Facebook, Alphabet, Amazon and Microsoft?

    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.

    F¥&K you JPM.  I distrust your motivation
    lolliverpatchythepirate
  • Reply 8 of 24
    bkkcanuckbkkcanuck Posts: 854member
    badmonk said:
    So why does Apple always get the pessimistic short-term perspective from Wall Street while Wall Street takes the longterm perspective on Facebook, Alphabet, Amazon and Microsoft?

    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.

    F¥&K you JPM.  I distrust your motivation
    Because Apple is seen as a manufacturer not a high growth services company.  Manufacturers tend to grow more slowly.  Apples product / services line is very focused, while Microsoft has a much wider variety of products and services that it is into.  Personally, I think several of those that you mentioned (definitely Amazon) are overvalued....  It does not mean the market is right, if it were always right they would not have burned trillions of dollars in the .com boom and bust.
    mike1
  • Reply 9 of 24
    badmonkbadmonk Posts: 747member
    So did JPM have a similar perspective on the short term implications of Microsoft's LinkedIn acquistion and the changes in their accounting?

    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.
    lolliverapplesauce007patchythepirate
  • Reply 10 of 24
    bkkcanuckbkkcanuck Posts: 854member
    I think the Linked In acquisition is the new Nokia.....
    slprescottlolliverapplesauce007montrosemacspropodjony0
  • Reply 11 of 24
    >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. 

    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.
  • Reply 12 of 24
    bkkcanuck said:
    I think the Linked In acquisition is the new Nokia.....
    LinkedIn certainly could turn into another Nokia. It's really just too early to tell. However, there are those saying that there's some long-term strategic blah-blah which will turn Microsoft into some new powerhouse social company. The Wall Street brain-trusts think LinkedIn's purchase for $26B is a far better acquisition than Apple's purchase for $3B of Beats Inc. I'm willing to bet Apple has probably already made its money back with Beats and it'll likely take many, many years for Microsoft to get back that $26B, if ever. LinkedIn never made any profit, so I can't imagine Microsoft being able to, but that's just my take.
    patchythepirate
  • Reply 13 of 24
    NY1822NY1822 Posts: 567member
    if Apple releases a second generation Apple Watch, those estimates will be doubled. We know where the hedge funds stand now...the short interest doubled this last month and now we sit back and watch all the scare tactic articles claiming " market conditions " and Apple Watch numbers as a reason to sell
    lolliverpatchythepirate
  • Reply 14 of 24
    bkkcanuckbkkcanuck Posts: 854member
    NY1822 said:
    if Apple releases a second generation Apple Watch, those estimates will be doubled. We know where the hedge funds stand now...the short interest doubled this last month and now we sit back and watch all the scare tactic articles claiming " market conditions " and Apple Watch numbers as a reason to sell

    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.  
    singularity
  • Reply 15 of 24
    slprescottslprescott Posts: 749member
    bkkcanuck said:
    badmonk said:
    So why does Apple always get the pessimistic short-term perspective from Wall Street while Wall Street takes the longterm perspective on Facebook, Alphabet, Amazon and Microsoft?
    Because Apple is seen as a manufacturer not a high growth services company.
    Yes.
    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".
    lolliverpatchythepirate
  • Reply 16 of 24
    rogifan_newrogifan_new Posts: 3,750member
    bkkcanuck said:
    badmonk said:
    So why does Apple always get the pessimistic short-term perspective from Wall Street while Wall Street takes the longterm perspective on Facebook, Alphabet, Amazon and Microsoft?

    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.

    F¥&K you JPM.  I distrust your motivation
    Because Apple is seen as a manufacturer not a high growth services company.  Manufacturers tend to grow more slowly.  Apples product / services line is very focused, while Microsoft has a much wider variety of products and services that it is into.  Personally, I think several of those that you mentioned (definitely Amazon) are overvalued....  It does not mean the market is right, if it were always right they would not have burned trillions of dollars in the .com boom and bust.
    This whole "services" term bugs me because it basically encompasses anything that isn't selling  a physical good. Google and Facebook make most of their money off ads, not charging consumers for "services". Does Wall Street want Apple to become an advertising company? Or do they want Apple to starts selling cheap hardware and then having consumers pay for every piece of software on top of it? They would lose customers in a hurry since their hardware would no longer be a differentiator and most Google stuff is free. "Services" businesses are growing until they're not and then Wall Street will move on to the next thing.
  • Reply 17 of 24
    gatorguygatorguy Posts: 19,805member
    bkkcanuck said:
    foggyhill said:
    Apple watch is just a few percent of Apple sales so that's a weird one.
    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.  
    Well stated
    singularity
  • Reply 18 of 24
    gatorguygatorguy Posts: 19,805member
    bkkcanuck said:
    badmonk said:
    So why does Apple always get the pessimistic short-term perspective from Wall Street while Wall Street takes the longterm perspective on Facebook, Alphabet, Amazon and Microsoft?
    Because Apple is seen as a manufacturer not a high growth services company.
    Yes.
    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.
    What car did Google announce they'd be selling? None that I know of. In fact Google has clearly stated they have zero plans to sell a car. 

    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. 
    edited June 2016
  • Reply 19 of 24
    minisu1980minisu1980 Posts: 114member
    NY1822 said:
    if Apple releases a second generation Apple Watch, those estimates will be doubled. We know where the hedge funds stand now...the short interest doubled this last month and now we sit back and watch all the scare tactic articles claiming " market conditions " and Apple Watch numbers as a reason to sell
    Exactly, bought my puts a few weeks before WWDC. Only so much time left for Wall Street to pretend no one will buy the new iPhone and the end of days (Apples) are upon us.


  • Reply 20 of 24
    minisu1980minisu1980 Posts: 114member
    bkkcanuck said:
    NY1822 said:
    if Apple releases a second generation Apple Watch, those estimates will be doubled. We know where the hedge funds stand now...the short interest doubled this last month and now we sit back and watch all the scare tactic articles claiming " market conditions " and Apple Watch numbers as a reason to sell

    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.  
    For JP Morgan to reduce their price target from $125 to $105 serves to actively encourages investors to move their money elsewhere, perhaps another company they have just increased their price target on by $20. I am sure they hold zero short interest in companies who price targets they reduce and zero call interest in the other companies they increase their price targets on.


     
    patchythepirate
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