From a note to clients by analyst Andrew Uerkwitz that landed on my desktop Tuesday:
We’ve been getting a lot of questions regarding the impact from COVID-19. The rapidly changing news cycle has us adjusting near-term estimates, but not our thesis. We continue to believe that Apple, with its strong brand, supply chain expertise, and “essential” status for users, will recover more quickly than peers. While we wait for a recovery, Apple’s balance sheet flexibility (cash, buybacks, and dividends) should give investors comfort the company can escape a protracted period of uncertainty. With so many companies withdrawing estimates, multiple weeks of retail shutdown and mandatory quarantines, our estimates are as good (or bad) as anyone’s. However, with this note, we try to build a simple framework for sales adjustments…
- Model Changes: We take aggressive cuts to March and June quarter estimates based on near-term challenges related to supply chain disruption, key product delays, global retail store shutdowns, and a weaker consumer appetite. We now assume a 13% Y/Y sales decline for both F2Q20 and F3Q20, comparing to our prior estimates of 1% and 0% declines, respectively.
- Estimate Changes by Product: Our new estimates assume hardware suffers a significant Y/Y decline, led by iPhone (over 50% of LTM sales) headwinds in C1H20. We assume iPad and Mac to decline more moderately than iPhone. We expect minimum impact on Y/Y growth for software and service sales—global shutdown may lead to upside to software and service revenues…
- Sources of Upside and Downside: Upside to our estimates may come from stronger service and software sales and channel inventory replenishment. Downside may come from major macro headwinds in Americas and EU, as well as bigger-than-expected COVID-19 disruptions in APAC. We see our near-term estimates closer to a “worst case scenario”, implying loss of 2.9-week of sales comparing to original guidance for March.
Maintains Outperform rating and $320 price target.
My take: $320 is the new $400.