JP Morgan holding fast on AAPL at $350 despite coronavirus challenges
JP Morgan's Samik Chatterjee is seeing big impacts to Apple in 2020 because of various market forces associated with the coronavirus, but no real impact to the company lasting through 2021.
Apple's iPhone sales remain down in China because of the coronavirus, but production is ramping
In a note to investors seen by AppleInsider, Chatterjee is continuing to refine the impacts that the coronavirus outbreak will have on Apple. In the short term, Chatterjee is predicting 32 million iPhones sold in the March quarter, versus 39.5 million a year ago. The June quarter is expected to have a similar drop to 32.5 million iPhones sold, versus 40.7 million in the quarter in 2019.
Year over year, there is a modest year over year decline, with Chatterjee seeing 190 million iPhones sold on the fiscal year, versus 203 million in the previous year.
But, the demand won't be completely destroyed. The disruption will boost the 5G "iPhone 12" cycle Chatterjee expects, with the 2021 fiscal year expected to see 208 million iPhones sold.
Chatterjee's data from iPhone assembly partners and sources within the supply chain are predicting full production to be delivered by China manufacturing by the end of March. Total production is obviously impacted, though, with about 50% of seasonal capacity delivered by month-end versus 2019.
Chatterjee does see downward pressure on Apple stock price in the near-term. However, he believes that "Apple shares are likely to continue to outperform the broader market" given strong demand for Apple products in general, and the upcoming 5G cycle listed as specific reasons for long-term success.
"We see upside on several aspects of the business as well as financials that remain under-appreciated by investors, namely the transformation of the company to Services, growth in the installed base, technology leadership, and optionality around capital deploymentall of which together lead us to expect double-digit earnings growth and a modest re-rating for the shares," Chatterjee says.
Chatterjee is retaining J.P. Morgan's price target he previously set for Apple stock at $350 based on the firm's December 2021 earnings per share estimate of $16.79 raised from $16.18, and on a blended profits to earnings ratio of 21x, up from 18.5x. This is still derived from using a 16.0x multiple for iPhones, 11.0x for Mac and iPad devices, 25x for Services, 20x for Apple Watch & AirPods, and 11.0x for Other Products.
Apple's iPhone sales remain down in China because of the coronavirus, but production is ramping
In a note to investors seen by AppleInsider, Chatterjee is continuing to refine the impacts that the coronavirus outbreak will have on Apple. In the short term, Chatterjee is predicting 32 million iPhones sold in the March quarter, versus 39.5 million a year ago. The June quarter is expected to have a similar drop to 32.5 million iPhones sold, versus 40.7 million in the quarter in 2019.
Year over year, there is a modest year over year decline, with Chatterjee seeing 190 million iPhones sold on the fiscal year, versus 203 million in the previous year.
But, the demand won't be completely destroyed. The disruption will boost the 5G "iPhone 12" cycle Chatterjee expects, with the 2021 fiscal year expected to see 208 million iPhones sold.
Chatterjee's data from iPhone assembly partners and sources within the supply chain are predicting full production to be delivered by China manufacturing by the end of March. Total production is obviously impacted, though, with about 50% of seasonal capacity delivered by month-end versus 2019.
Chatterjee does see downward pressure on Apple stock price in the near-term. However, he believes that "Apple shares are likely to continue to outperform the broader market" given strong demand for Apple products in general, and the upcoming 5G cycle listed as specific reasons for long-term success.
"We see upside on several aspects of the business as well as financials that remain under-appreciated by investors, namely the transformation of the company to Services, growth in the installed base, technology leadership, and optionality around capital deploymentall of which together lead us to expect double-digit earnings growth and a modest re-rating for the shares," Chatterjee says.
Chatterjee is retaining J.P. Morgan's price target he previously set for Apple stock at $350 based on the firm's December 2021 earnings per share estimate of $16.79 raised from $16.18, and on a blended profits to earnings ratio of 21x, up from 18.5x. This is still derived from using a 16.0x multiple for iPhones, 11.0x for Mac and iPad devices, 25x for Services, 20x for Apple Watch & AirPods, and 11.0x for Other Products.
Comments
Whatever impact the current situation has on revenues, it is temporary, not a symptom of a fundamental problem with Apple's business. And even if Apple's revenues permanently dropped by 25% over what they would have been, $350 is still a reasonable target.
I compared the likely casualties of this Coronavirus to WWII on several occasions in these forums. The total number of dead from this virus may double the WWII casualties suffered by all countries combined. I've been called an alarmist here, but I'm a realist. I'm not panicking; I'm giving you my honest opinion. So far, everything I've said since early February turned out to be correct. We have not even experienced a serious number of infections or deaths yet. Everything that has happened to the stock market so far is based on pure fear. The number of infected in the US is several million already, but they don't know it yet. My prediction is that the next 7-14 days will look like a war zone because the infected people wills start having symptoms, and our hospitals will become overwhelmed within the next 2 weeks. People will be dying because there aren't enough ventilators or hospital beds to accommodate all people who will turn sick within the next few days.
The best people can do for themselves right now is a complete isolation from the world in their homes. I leave my home early in the morning for an 1.5-long walk before anyone else wakes up, and I'm back by 8:00 AM. I spend the rest of the day indoors, and so does the rest of my family. On the other hand, my neighbors are having a great ol' time right now having parties. They treat this time as a once-in-a-life free time off. They are supposed to be working from home, but they are congregating outside, visiting each other's houses, having wine and beer, laughing, touching each other, etc. So, there are two approaches to what's happening right now. We will see who is right and who is wrong in the next two weeks.
As for the price of AAPL, we will be lucky if it holds around $150 until we defeat this virus and the life starts getting back to "normal". I also predict Dow to get to 18,000 in the next couple of weeks and hold there before we know how bad the epidemic becomes in the US. If it turns out as serious as in China, Dow will go down to 14,000 or even lower.
I myself, like many others here and elsewhere, are hoping it heads lower so that we can continue accumulating it. And I’d like Apple to repurchase and retire as many shares as possible, increasing my ownership percentage in the company and driving up EPS. I have a long term view.
If the world is going to be as bad as you say, do you really think you will only need to isolate yourself inside for the next two weeks? That doesn’t make any sense to me.