J.P. Morgan trims Apple price target and iPhone estimates

From a note to clients by analyst Samik Chatterjee that landed on my desktop Monday:

We are trimming our earnings estimates as we now forecast modest y/y declines in iPhone shipments for both calendar 2018 and 2019 on account of a weaker macro backdrop in emerging markets, which is driving both softer consumer confidence in certain countries, as well as the headwind of the stronger USD making phones more expensive in local currencies.

Led by the softer backdrop in the EMs [emerging markets], the better than expected response to the iPhone XS and the iPhone XS MAX (the higher-end phones) is unable to entirely offset the more tepid than expected consumer response to iPhone XR (launched recently).

While the launch of the XR is now giving consumers greater visibility into the product in the iPhone lineup they want to buy, and is driving pent up demand towards both XS MAX and XS, we believe the challenges faced by the consumer in the EMs is likely leading to deferral of some of the purchases, which will drive a stronger pent up demand when macro conditions improve.

Net, we are lowering our annual iPhone volume expectations by 2 mn for CY18 (214 mn), 10 mn for CY19 (208 mn), and 10 mn for CY20 (210 mn), respectively; however, our earnings forecast only declines by a modest $0.10 in each of FY19 and FY20 (Sep-end) led by the outlook for richer mix of phones sold.

Maintains Overweight rating, lowers price target to $266 from $270.

My take: I'm skeptical about this "more-tepid-than-expected-consumer-response-to-iPhone-XR" meme. I always thought the right-priced XR would be a point-of-sale winner, and according to the Apple staff I dealt with In my several visits to the Holyoke (Mass.) Apple Store this weekend, their hot-seller was indeed the iPhone XR.

Below: The trimmed estimates.

j.p morgan trims estimates

Click to enlarge. 


  1. Patrick Beyrouti said:
    He can say what ever he wants , no one will ever be able to verify the NUMBER of iPhones he is presenting … At least have an article in line with Apple next reporting structure .

    The XR wont show spectacular results and Apple sure knows that the MAX is in high demand and will over compensate for for XR.
    His article does not say anything positive on services nor on wearables.
    Now despite all that…. the NEW target $266 lower by (-$4.00) is still amazing for a 2019 finish . !! Wow … why write the article in the first place.

    November 12, 2018
  2. David Emery said:
    Well, it’s not Christmas yet. Wife is due for a new phone this year, we’re in no rush but will probably close the deal in this quarter.

    November 12, 2018
  3. George Cardoso said:
    Holyoke its a small mill town. I have no idea why Apple would put an Apple store in a low income town with a population of 40,000. He should have gone south 13 miles to Springfield Ma. population 150,000 +/- for a better sample. My guess, he doesn’t want to drive an hour.

    November 12, 2018
    • David Drinkwater said:
      There’s a small Liberal Arts School there that sucks in money. Some of that pressure has to leak out into the local economy.

      November 12, 2018
  4. Fred Stein said:
    I was about to start a screed, but then saw his target is $266. We’re good.. And he has published a model, which puts him head and shoulders about most analysts.

    Back to the screed: Modeling iPhone unit shipments through 2020 can’t be that accurate and its unverifiable. Likewise, a $.10 change in forward EPS is less than 1%. Compare 1% to the market’s daily emotional mood swings, macro economic factors which no one can predict, and about 30% of buybacks that Apple will execute over the next five years.Services, which has an increasing impact, is harder to predict and will off-set minor changes in iPhone shipments.

    November 12, 2018
  5. Gregg Thurman said:
    I’m disappointed by Chatterjee’s continued focus on iPhone units. Didn’t he get Maestri’s memo?

    I’m further disappointed in his lack of Services and Wearables growth analysis, or rising iPhone ASPs. He’s perfectly willing to look out to 2020 for iPhones, but not these 2 very important revenue streams.

    Lastly nobody seems to be paying any attention to Apple’s rapidly growing enterprise sales. I would expect that IBM Mac sales efforts, focusing on TOC, ease of use, productivity and security, and supported by Cisco, Oracle, SAP and several other enterprise support companies, will start bearing luscious fruit in the next couple of years.

    As I see it iPhones and iPads are primarily consumer facing products with very strong enterprise value, but Macs are trucks for the enterprise, which would naturally include the creatives, but far outnumber them.

    Sadly, analyst focus continues to be myopic. THEY ARE NOT CONSIDERING THE WHOLE OF APPLE.

    November 12, 2018
  6. Robert Paul Leitao said:
    I really don’t know how any analyst can determine for the model year demand for the iPhone Xr this soon after release. More important than unit sales of any particular iPhone model or total iPhone unit sales in any particular quarter or fiscal year is the deployment of the A12 Bionic chip and its planned successor. Combined with sales of the A11-based iPhone 8 series handsets this year, Apple is delivering to consumers and enterprises the most advanced handsets in mass production on the planet and with these advanced handsets the most robust environment for developers possible.

    Not to take away from the analyst’s hard work, but iPhone unit sales is not the forward-looking metric to determine Apple’s success or even its revenue and earnings looking out as far as two years from today. Just ask Luca and Tim. They kind of said the same thing in the conference call with analysts just 11 days ago.

    In FY2019, Services revenue is likely to be greater than the combined revenue of the Mac and iPad lines and Other Products revenue continues to rise at a more than 20% pace. Looking at the analyst’s eps forecast, share repurchases will have a greater impact on the eps outcomes in FY2019 and FY2020 than the analyst’s forecast reduction in iPhone unit sales.

    The analyst’s price target and outperform rating are aren’t so bad. I’m looking forward to the analyst’s next note.

    November 12, 2018
  7. Gregg Thurman said:
    The broader indexes may take a hit over the next year, and that may spill over onto AAPL, but Apple (two different things) will continue to perform above the S&P 500 average.

    Piss on iPhone unit sales, the active base of iOS devices will continue to grow and buy an ever increasing amount of Services and Wearables.

    Worldwide Smartphone unit sales WILL decline precipitously, but not iPhone (that will probably go essentially flat). Apple is gearing up other reasons to upgrade than new looks, displays and processors. It’s called Services, something fragmented Android will find near impossible to duplicate.

    Once the noise subsides, AAPL, wherever it is trading, will resume its 30% YoY upward trajectory.

    November 12, 2018
    • Mark Visnic said:
      Have you (anyone here) tried to model the growth of the installed base? It clearly has grown in the last 2 1/4 years despite flat iPhone unit volume. Dan Niles made a flawed statement on CNBC today. He said Apple can’t sell more services without selling more iPhones. The data speaks more accurately and eloquently.

      Assuming some fraction of used iPhone sales go to people previously using Android phones and further assuming some fraction of new iPhone sales go to people previously using Android phones, the installed base easily can grow just from iPhones alone.

      What is it with the analysis of these analysts? Too many of them can’t see the data for their models. Niles is no longer an analyst as he was when I knew him but he holds himself out as one.

      November 12, 2018
  8. Gregg Thurman said:
    as well as the headwind of the stronger USD making phones more expensive in local currencies.

    The US$ hit an 18 month high against foreign currencies today. Of course, this shouldn’t come as a surprise as Maestri stated December quarter results were going to be negatively impacted by about $2 Billion BECAUSE of FX headwinds.

    Anybody that pretends to follow Apple/AAPL closely should already have baked this into the price of AAPL. Sacconaghi’s pronouncement today is factually meaningless.

    November 12, 2018

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