Apple's Price Targets Are Changing

Key Points

• Analysts have been downgrading Apple's stock.
• The stock continues to trade below its intrinsic value.
• Technicals signify sell, but sentiment and outlook may be overly pessimistic, and not reflective of reality.

Apple NASDAQ: AAPL is increasingly witnessing stock downgrades, and analysts are increasingly worried that as the company’s forecasts for production come down from their previous estimates, revenue could in much slower than previously expected. The average price target is still around $180, according to MarketBeat data, indicating a 30% upside.

Analysts have forecasted that the company is expected to order 10% fewer phones than previously projected, this is an increase from the previous estimates of 6 million fewer phones at around a 6.7% percent decrease in orders. These estimates are mainly based on early channel checks with suppliers, but demand is likely to be much higher as multiple tailwinds help iPhone 14 sales. On the other consumer sentiment has improved in the latest quarter as inflation slowly starts to moderate, and wages start to catch up. The improving sentiment, combined with better demand dynamics out of Asia, could see Apple’s revenue head back towards previously forecasted expectations, which would mean the stock could head back up as well.

AAPL continues to hold up well despite a market downturn

Apple’s stock has been largely flat for the year, down about 1.45 percent since the start of the year. Major banks have downgraded the stock, including calls for the stock to hit $160, which has recently pushed the stock’s valuation back down to multi-year lows, and now Apple's valuation trades at around 23x price-to-earnings. While the downgrades might come as negative sentiment takes hold, valuations have been relatively high in recent times regardless, so any downgrades should be taken within the context of the broader market, interest rates, and liquidity, which has been abundant for the past few years.

However, a number of investment managers have pointed, contrary to current sentiment, that lead times have continued to remain steady for the iPhone, and that any sentiment for a demand pullback is overstated. This could mean that shipments could hit the 80 million mark that has been forecasted previously, and revenue during the next quarter could come in as projected.

In other news, Mac shipments continued to be robust despite global PC sales coming in weaker than expected. IDC reported that Mac sales inched higher, rising by 40%, for the period, compared to PC sales which have shown a 15% decrease during the latest quarter. The latest number clearly points to a market that may be underestimated by analysts, many of whom have cut Apple’s price targets by 10-15%. The most significant gains were a result of demand surging due to China reopening. Without Mac sales, computer sales would be down closer to 20%.

Revenue is estimated to come in at around $120 billion for the next quarter, and earnings per share are expected to come in at around $1.26. Revenue could come in slightly lower, but earnings should hit analyst estimates, which could send the stock back up to the $150 level.

Apple Stock Technicals Sending The Wrong Signals?

The current technical indicators remain neutral with the RSI currently showing a reading of 36. Meanwhile, the put-to-call ratio currently stands above 1 in the near term, and the technical signals point to a sell signal. Should the next quarter come in stronger, the stock could quickly turn around as sentiment reverses.

The global economy continues to be in limbo, with interest rates rising, but economic indicators remain relatively steady. Inflation continues to run hot, and companies such as Apple, have refrained from raising prices despite Apple’s products being relatively price inelastic compared to other consumer products.

Apple’s future remains bright for now, the products have gained market share, and strong growth from ancillary services such as the Apple store, which should ensure that growth remains relatively steady throughout the year. The current valuation taking into account a rate of growth of around 10%, and margins remaining steady would mean that the current valuation of the stock is around $148-$150.