Apple Stock Has an Earnings Problem:
By Richard Saintvilus
Shares of Apple, Inc. (AAPL), which are down more than 24% over the past year, have been under pressure for most of 2016, punished for a variety of reasons, including falling iPhone sales. Add in the company’s perceived inability to innovate and the share price has little room to expand. But these are only part of the problem.
The Disconnect Between Apple and Wall Street
Will Power, senior research analyst at Robert W. Baird & Co. has another theory. Despite the constant doom and gloom associated with the Cupertino-based tech giant, the analyst doesn’t believe that Wall Street’s bearishness is fully reflected in Apple’s earnings estimates. On Friday, Power noted that Apple’s earnings estimates must come down before the stock can move sustainably higher. (See also: Apple Stock Declines After Insiders Sell Shares.)
“It’s tough for stocks to work until you get them sufficiently reset to where you can at least meet, if not beat, estimates,” Power told CNBC. “Unfortunately, the iPhone 7, while I think it will be a nice upgrade, it doesn’t look like it will be a game changer.”
Power’s fiscal 2017 earnings forecast for Apple is at $7.46, well below consensus estimates of $9.06. In terms of iPhone unit sales, the analyst expects Apple to deliver 90 million to 110 million units of the upcoming iPhone 7, which would mark a decline from the iPhone 6s launch a year ago.
As for next year, Baird sees further iPhone shipment declines of around 2.3%. This compares to consensus estimates for an increase in mid-single-digits, Power noted on Friday. And while Wall Street forecasts Apple shares to rise to around $120, which is down from prior forecasts of $146, Power’s price target is also lower at $115 per share.
In other words, Power believes there’s a fundamental disconnect between Wall Street’s projections and what Apple has shown it can do. And until this disconnect is reconciled, Apple shares won’t fully bottom, which he believes will prevent the stock from moving higher.(See also: Why Apple Stock Closed at Two-Year Low Last Week.)
The Bottom Line
Apple stock closed Friday at $95.89, up 0.30%. The shares have declined 8.9% year-to-date, while falling 24.35% over the past twelve months. This compares with a 2.89% year-to-date rise in the S&P 500 (SPX) index.