The Club woke up to dueling Wall Street research notes on Apple (APPL) Thursday morning in the wake of a report the tech giant may be canceling plans to increase production of its nascent iPhone 14. Despite the conflicting takes, we’re not too concerned about Apple’s production capacity and continue to back the stock . What Bank of America says On the one hand, Bank of America downgraded Apple shares to neutral from buy, cutting their price target to $160 from $185 on the back of weakening consumer demand. In addition to the risk of a weaker iPhone 14 cycle, the note flagged a slowdown in services revenue, an expected decline in gross profit in the coming quarters, a reversion to pre-Covid demand levels for iPads and partially for Macs, and the negative impact of a strong dollar on international demand. “What we’re seeing is that consumer spending is starting to really slow down … demand is decelerating and that’s the main concern ,” BofA analyst Wamsi Mohan told CNBC Thursday. Apple’s stock, which is down more than 19% year-to-date, was trading down nearly 5% Thursday afternoon. Shares ended Wednesday down only 1.2% but had been much lower earlier in the session. The stock made a real run at its early January highs in the summer rally that started in mid-June and ended in mid-August. What Rosenblatt says Rosenblatt Securities upgraded Apple shares to buy from neutral, raising their price target to $189 from $160. Analysts at Rosenblatt cited the bank’s survey of over 1,100 U.S. adults, which showed “substantial interest” in the company’s new iPhone 14 Pro Max and Ultra watch. Speaking to the higher-end demand mix, the analysts noted that two-thirds of respondents intended to pick up either the Pro Max (40%) or Pro (26%) models. Perhaps more importantly for the longer-term investor concerned with Apple’s ability to grow its services revenue, the Rosenblatt survey revealed that “18% of Android respondents said they already had or expect in the next 12 months to buy an iPhone 14.” Regarding watches, 23% of respondents “had already ordered one of them or expected to over the next 12 months,” while 47% “of those who expect to buy one of the devices said they plan on Ultra.” That’s a very positive development that could lead to a significant increase in the average selling price of the high-end watch. “These devices are something that consumers really want, based on our survey work,” Rosenblatt analyst Barton Crockett told CNBC Thursday, adding that Apple was the ” cream of the crop of what consumers want to spend money on in this environment.” The Club take We think Bank of America is correct to highlight a strong dollar as a real risk to international demand. But that said, even the BofA analysts conceded that their concern is more about near-term valuation than the longer-term outlook of the business. “Although Apple’s long-term prospects remain favorable, we see incremental risk to earnings and valuation over the near term,” the note said. Indeed, that’s why there is no change in our view that regardless of the how absolute demand for the iPhone 14 ultimately pans out, investors would do well to own Apple for the long haul, rather than attempt to trade the cycle. Longer-term value creation is more tied to overall growth in the installed base than it is to how many phones Apple can sell at launch. We think the installed base will likely continue to grow as Apple’s ecosystem continues to strengthen. Moreover, management’s “net cash neutral over time” strategy stands to support earnings growth even if topline growth stagnates for a time. In this brutal bear market, it is worth keeping in mind that the lower Apple’s stock price goes in the short term, the more shares the company can buy back with its repurchase authorization program – and, as a result, the more the patient investor will own of the total company in the long term. (Jim Cramer’s Charitable Trust is long APPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Customers queue at the Apple Fifth Avenue store for the release of the Apple iPhone 14 in New York City, September 16, 2022.
Andrew Kelly | Reuters
The Club woke up to dueling Wall Street research notes on Apple (APPL) Thursday morning in the wake of a report the tech giant may be canceling plans to increase production of its nascent iPhone 14. Despite the conflicting takes, we’re not too concerned about Apple’s production capacity and continue to back the stock.
