Daniel Ives: Ride out the market storm with Apple

“As of now we believe iPhone demand is holding up better than expected and are trending better than management’s guidance thus far in the quarter.”

From a note to Wedbush clients that landed on my desktop Friday:

With multiple compression across the board in tech and fears of a growth slowdown rising, shares of Apple have been under pressure like every other tech stalwart name. Over the last few weeks our Asia iPhone supply chain checks have been “surprisingly resilient” despite the zero Covid driven demand issues in China that remain the elephant in the room for the Apple story in the Street’s eyes.

The albatross for the June quarter in our investor conversations over the past month have naturally been the Covid lockdowns in China which will negatively impact revenue by between $4 billion and $8 billion as a headwind according to Cook & Co.’s guidance given last month.

As of now we believe iPhone demand is holding up better than expected (despite the various supply issues that have plagued Apple and the rest of the tech sector) and are trending better than management’s guidance thus far in the quarter.

So far iPhone demand holding up well despite the fears. The China issues and supply chain should be peak worry in the June quarter and then subside into the key September/December quarters on the heels of a new iPhone 14 launch. We believe the initial bogey and production plans for iPhone 14 should be up modestly from iPhone 13 out of the gates which speaks to Apple’s confidence that pent up demand for this next release remain healthy despite the jittery macro…

Installed base the key to Apple’s success to navigate this storm. With an unparalleled installed base of 1 billion iPhones worldwide and 1.8 billion iOS devices for Cupertino this continues to remain Apple’s unique advantage over other technology stalwarts. The stickiness of the iPhone upgrade cycle is being underestimated by investors in our opinion as we estimate that roughly 240 million of Apple’s 1 billion iPhones have not been upgraded to a new smartphone in roughly 3.5 years. This importantly speaks to the Apple growth path over the next 12 to 18 months as iPhone 14 is set to be unveiled in the September timeframe…

While the nervous market backdrop is creating a fearful environment for tech stocks, we believe Apple’s growth story remains well intact despite the macro. Apple remains our favorite tech name.

Maintains Outperform rating and $200 target. 

My take: Watch for Ives to do a version of this — without the elephants and albatrosses, perhaps — on CNBC.

8 Comments

  1. Fred Stein said:
    As Katy H. said, “demand is not perishable.” Or paraphrasing an old cliche, “Tough times don’t last, tough companies do.” Or, “Market’s are voting machines in the short term, adding machines in the long term.”

    Hats off to Luca M. for upping the buyback allocation a tad.

    5
    May 20, 2022
  2. Adam Stein said:
    What worries me is not Apple’s sales, it’s the contraction in the earnings multiple. The last couple of years of easy money from the Fed coincided with an expansion in AAPL’s multiple from 15-18 to over 30. Is it possible that now, with Fed tightening, AAPL’s multiple returns to that sub-20 range? Even with great EPS growth (let’s say 2023 EPS of 6.70), a 15-18 multiple would pressure the stock lower (100-120).

    2
    May 20, 2022
    • Robert Paul Leitao said:
      Adam: I’m much more concerned with rising net income than the trailing earnings multiple. As long as net income keeps rising, the share price will keep rising. It jut takes a little longer for the shares to reach a particular target as multiples compress. In Apple’s situation, the impact of rising net income on eps in amplified by share repurchases. Apple can’t control market wide pressure on share prices. However, these pressures ebb and flow. What the company can do is continue to repurchase shares and take advantage of lower share prices during these episodes of market wide multiple contraction. These episodes eventually come to an end.

      5
      May 20, 2022
      • Kirk DeBernardi said:
        RPL —

        Are you possibly referring to “stickin’ to your knittin’?

        0
        May 20, 2022
        • Robert Paul Leitao said:
          Kirk: Without net income growth little else matters, including massive share repurchases. Apple can’t control the vagaries of the market nor can the company’s shareholders. Interest rates move up and down, the economy moves up and occasionally down, and Apple’s massive share repurchase program will eventually wind down. Through it all, net income growth is what will fundamentally move the share price higher.

          0
          May 20, 2022
  3. Hap Allen said:
    With Apple’s cheaper stock price, I’m excited by the thought that Apple and Berkshire Hathaway may both be buying up shares. (I have a little BRK.B.)

    Seems to me that those two are ‘doing the work,’ so no response needed from me to this down market.

    0
    May 20, 2022

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