Sacconaghi raises Apple price target ahead of Q3 earnings

“Apple investors focus will be squarely on Q4 guidance.”

From a note to clients by Bernstein analyst Toni Sacconaghi that landed in my inbox Tuesday:

While the street appears to be increasingly factoring in a delay for iPhone 8 and weak Q4 guidance, we note that only about 1/5 of analysts have lowered numbers for Q4, and we see the possibility that Apple could guide Q4 revenues $6B – $10B below cons estimates (we are at $42.7B vs. $50.4B), if there are delays with iPhone 8, which appears increasingly likely. We also encourage investors to monitor GM guidance, given the continued rise in NAND prices during the quarter and potential for a negative mix shift if the flagship iPhone 8 is delayed.

So will (potentially very) weak Q4 guidance matter? In our opinion, no – *unless* iPhone 8’s availability is pushed out past early November, in which case we believe that Apple could see incremental switchers away from iPhone, potentially undermining FY 18 numbers. A key question is what Apple might say on its conference call in the face of weak guidance.

Maintain Outperform rating and raise target price to $170 from $160.

Note: Sacconaghi is, for my money, one of the smartest Apple analysts on the Street. Last Earnings Smackdown he finished 10th out of 27. See Best and worst Apple analysts, Q2 2017 edition.

2 Comments

  1. Robert Paul Leitao said:

    In the case of Apple, quarterly results are nothing more than a blurry static snapshot of a fast-moving enterprise object. It is essentially inconsequential to the company’s long-term growth whether the so-called iPhone 8 begins shipments in the September quarter or the December quarter. While the “great debate” as to when the iPhone 8 will ship in quantities sufficient to meet demand continues, by and large analysts are raising their 12-month price targets for Apple.

    Current speculation suggests Apple will release three new handsets this fall. Presuming the company continues with substantially the same form for the “s” year of the iPhone 7 series, there will most likely be few production and shipment delays for those models. We know from product history Apple rarely contracts for short-term spikes in product demand. It’s expected supply of a new iPhone handset series will be initially constrained as production ramps to meet demand. It hasn’t been uncommon for supply-demand equilibrium to occur in the March quarter following the release of a new iPhone form in September or early October.

    More important than when supply-demand equilibrium will be reached on the iPhone 8 are the technology advances Apple will bring to market with both the iPhone 8 and the new iPhone 7 series models.These advances will further distance the competition and provide for an even more robust environment for iOS developers and 3rd-party accessories makers for the iOS platform.

    Apple continues to widen the company’s economic moat while maintaining pricing control over its products. A year from now it won’t matter how long it took for the company to meet demand for iPhone 8 handsets. What will matter is the fact the company will sell in the range of one-quarter billion iPhones in FY2018 and the iPhones sold will include the latest technologies available to the consumer and all of the handsets sold will run the latest versions of iOS.

    2
    July 26, 2017

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