Apple Inc. (NASDAQ:AAPL) Price Target Slashed. But Why?

Apple Inc. (AAPL)

Apple Inc. stock has been reiterated with an “overweight” by Pacific Crest analyst Andy Hargreaves. However, the analyst lowered the price target on the stock from $132 per share to just $127 owing to reduced expectations regarding the company’s revenue and profit for the current fiscal year.

Apple Inc (AAPL)

Lower revenue for Apple

A report from Motley Fool by Ashraf Eassa details on the reason the analyst has lowered the price target. Hargreaves argues that his team is not able to see any evidence of the iPhone customers leaving the platform at “greater levels,” suggesting that the market segment share loss is not necessarily responsible for the weak iPhone demand. If this dynamic continues, then the analyst claims, his team will “continue[s] to believe [that] normal replacement dynamics will drive mid-teens iPhone unit growth in the iPhone 7 cycle.”

It is expected that the iPhone shipments for the current fiscal year will be somewhere in the range of 200m units and 215m units, representing declines of 7% to 13% on yoy basis. Assuming Apple ships around 210m iPhone units, and makes a 15% growth of that base, then it will sell 241.5m units in fiscal 2017 – an all-time record for iPhone sales.

How the average selling prices for iPhones will go in fiscal 2017 would be very interesting to watch. It is expected that in the coming product cycle, Apple will introduce a “super premium” iPhone Pro, which will help boost the average selling prices. Apple Inc. will most likely come up with a new 4-inch iPhone SE and significantly reduce iPhone 5s prices. Both these can be seen as a potential headwind to the average selling prices, the report says.

iPhone 6s cycle a bust. Why?

The fact that the iPhone 6s/6s Plus cycle has proven to be something of a bust is interesting, but not at all surprising because the firm made a silly move of trying to follow up on the iPhone 6 and iPhone 6 Plus, both of which were blockbuster and record smashing iPhones. Both the phones were so ahead of time that the new devices looked almost the same with minimal improvements to the camera and display, the report says.

In case, the upcoming iPhone 7 returns the iPhone business to unit/revenue growth even then Apple will have to make sure that with the follow-on ‘s’ cycle, it brings enough improvements so that the momentum is maintained. It is very important for the firm to carry out a careful examination of the reasons for the iPhone 6s cycle going bust.

On Monday, Apple Inc. shares closed down 1.11% at $101.87. Year to date, the stock is down over 3% while in the last one-year, it is down over 19%.

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    Aman is MBA (Finance) with an experience on both marketing and Finance side. He has work as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, playing PC games and cricket.


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