A Tale of Two Price Target Cuts
14 JULY 2022 - News of two more lowered price targets - one a sensible sounding trim, the other a bit more drastic. We’ll start on the sensible side.
Citi Analysts Lover Apple, But…
Citi analysts “Gentleman” Jim Suva and Asiya Merchant issued one of those “it’s not Apple, it’s the planet” notes midweek. MarketWatch had the two citing “[cautious] consumers, macroeconomic worries and continued supply chain bottlenecks” as concerns. It’s those “cautious consumers” that seem most troublesome. Quoting the analysts:
A more concerning metric is the potential for lengthening device replacement cycles (currently at approximately 4 years for smartphones) amid consumer spending contraction in an inflationary/recessionary environment that could compress annual iPhone shipments and drive lower units as consumers await a major iPhone redesign, which we believe is unlikely until 2023 with the foldable…
I’d like to pause here and stress, it’s the cut that’s sensible, not everything in the note. I have yet to hear a compelling reason for a foldable iPhone, and really have a hard time believing. Merhcant and Suva do believe, though. In fact, a foldable iPhone tops their list of five reasons to keep buying Apple shares.
1. The iPhone 14 build is expected to launch Sept. 14, with a foldable phone seen in 2023
2. A mix shift that continues to skew away from lower-priced Android phones toward mid-end and premium priced products
3. Apple’s plans to buy back around $90 billion in stock
4. “Sticky” services revenue and potential for more devices-as-a-service offering
5. New product launches such as AR/VR headsets and the Apple Car in 2025, neither reflected in current estimates and market cap.
Cool as all of that sounds, the analysts think their old price target of $200 is too much of a climb in the next 12-months. Citi has kept its “Buy” rating on Apple shares. Price target’s lower though - down to $175.
Tracking the Elusive Lynx
Now’s probably a good time to remind you that I am not a financial analyst and certainly not a financial advisor. I’m just a guy who’e been watching Apple, Apple watchers, Apple analysts, and other Apple related stuff for 17-years-and-change.
When I said we had news of two price cuts - one sensible, one drastic - that’s not to completely discount the second note. Barron’s (via Apple News) wrote up that one, from Lynx Equity Strategies analyst KC Rajkumar.
They’re not among the raft of analysts listed by TipRanks. I’ve never heard of Lynx Equity Strategies, nor have I heard of their analyst Rajkumar. For what it’s worth, Apple 3.0’s Philip Elmer-DeWitt has never heard of him either. Reading the Barron’s write-up of their note, it sounds like Rajkumar might be missing Apple’s… Appleness? Quoting Barron’s:
Rajkumar writes in a research note that Wall Street estimates for the September 2023 fiscal year look too high given softening demand for PCs and smartphones. “The Street has been toying with the idea of cutting Apple’s estimates but finds itself unable to make meaningful cuts,” he writes. “We think FY ‘23 estimates have meaningful downside.”
Things that make him think so include:
Reports of “softening” orders for iPhone 14 components, though that’s been a bone of contention among some Apple watchers
Word of weakened wafer starts for TSMC, though - as Barron’s points out - Apple is not TSMC’s only customer
Worry that global 5G adoption (and thus iPhone adoption) could slow #InThisEconomy
Those all sound like sensible concerns, though - again - they leave out whatever “thingness” it is that tends to keep Apple humming even in tough economic times. It also sort of sounds like he’s never heard of Apple’s Services business. But - even if we chuck in a slowdown for that, his cut on Apple seems aggressive. Apple is currently trading around $145. Rajkumar’s price target had been $150. That is now lowered to $125.
He’s not the first to assume that the fates of HP and Samsung will be Apple’s fate as well. He also wouldn’t be the first to be wrong about that. Then again, he might not be.
We’ll find out in the future.
