Mizuho is neutral on Apple, sees ‘modest downside’ ahead

From a note to clients by Mizuho analyst Abhey Lamba that landed in my inbox Thursday:

We note that media speculation in recent weeks has focused on the ongoing possibility of significant supply shortages in the early weeks following the launch of the [OLED] device (likely in the late September timeframe). In addition, some reports also indicate that the price of the device could end up being over $1,000 for the high-end SKU which, at those levels, could drive some demand elasticity despite the more-than-marginal feature upgrade…

Looking to the fiscal third quarter, we expect results toward the upper-end of management’s guidance, which would be in-line with consensus, while the company’s fourth quarter outlook could come in modestly below consensus on the back of ongoing pushouts in demand ahead of the September launch. As such, dynamics for the current quarter will likely be similar to the last quarter and we believe investors may see past the results with an eye toward the upcoming iPhone 8 product cycle…

In all, we remain on the sidelines given our view that the large upcoming cycle is already baked into the stock.

Maintain Neutral rating and $150 price target (FYI, below Thursday’s close).

Note: In last quarter’s Earnings Smackdown, bearish Lamba scored 21st out of 27. See Best and worst Apple analysts, Q2 2017 edition.

4 Comments

  1. John Kirk said:
    Microsoft had its best years on the market from 1985 to 2000. Ignoring the effects of the crash, Microsoft never did all that well after 2000. Ballmer was great at making money, but the Wall Street rewards (or attempts to reward) future growth, and Wall Street could never see a path for Microsoft to grow much bigger than it already was. That’s one of the “problems” with having 95% market share.

    Apple had its best year (stock wise) as it returned to prominence. Starting at so low a level (near death), their future looked brighter and brighter as Steve Jobs reenergized the company with iMac, MacBook, iPod, iPhone,iPad, etc. However, even though Apple is raking in the dough now, Wall Street can’t see how such a large company can continue to grow, so Apple’s stock prices has been mostly flat (on average) for the past few years.

    Everybody’s waiting for the “next big thing.” Of course, we often don’t know the “next big thing” even when it arrives. For example, some appreciated the iPhone when it was announced, but no one predicted that Apple would soon eclipse Microsoft and become the biggest tech company in the world. You would have had to have been mad to have made such a prediction.

    Now one thing that recently made me sit up and take notice was Apple’s ARkit. I, like everyone else, have been reading about how AR and VR are the future, but my experience has been that these kind of predictions take much longer to occur than the pundits expect. I had been wondering if AR would use the existing phone and tablet screens instead of glasses as so many had envisioned, but ARkit has blown my expectations away.

    I really don’t understand the potential for AR. I’m not sure anyone does. However, think it’s possible — only possible, mind you — that ARkit will be the new App Store, unleashing an explosion in creative new uses for phones and tablets. That’s a very big and very bold prediction. Perhaps I’m overawed and over impressed by the demoes. Demoes are not products. Perhaps what I’m seeing today are the flashlight apps and the tip apps of yesterday. But perhaps what I’m seeing is a platform that will produce the next Uber or the next…well, that’s the point. We just don’t know what ARkit might produce. And if AR becomes the next level of computing, then all bets are off. Who knows how high computing might soar?

    1
    July 21, 2017
    • David Emery said:
      Well, Microsoft the cloud company is doing quite well! Nadella’s rescue of Microsoft from The Ballmer will be/should be a classic Business School case study in how to save a company from itself/from bad leadership.

      0
      July 21, 2017
  2. Robert Paul Leitao said:
    Apple is trading at less than 18x trailing 12-month earnings, the company pays over $2.50 per share in annual dividends and management suggests the payout will be increased annually in the range of 10%. The company is also returning hundreds of billions of dollars in capital to shareholders through a massive share repurchase program.

    Several Wall Street analysts are expecting iPhone unit sales in FY2018 to far surpass 250 million with rising ASPs due to a much-anticipated new iPhone that is forecast to be supply constrained from unprecedented demand.

    This analyst suggests “the large upcoming cycle is already baked into the stock.”

    Let’s try this again: Rising revenue, rising ASPs, a rising dividend, a modest trailing earnings multiple and an ongoing reduction in the number of shares outstanding.

    In a contrary kind of way, this analyst’s sentiment may be a benefit to long-term shareholders. The lower the share price is now, the higher the EPS is later as management continues to repurchase shares on the cheap.

    2
    July 21, 2017

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