Apple Inc. (Nasdaq: AAPL) investors are having a tough week after the latest round of sales projections and analyst estimates suggest iPhone sales may come up short of expectations in coming quarters. But some analysts believe the problems with iPhones sales presents a rare opportunity for long-term investors to buy AAPL stock at a discount.
Morgan Stanley analyst Katy Huberty is the latest to lower iPhone estimates for 2018, but she says Apple’s year may still be better than investors are anticipating.
After analyzing Apple iPhone upgrade patterns and market share data, Morgan Stanley has raised its fiscal first quarter earnings per share and iPhone unit sales estimates. The firm was previously expecting EPS of $3.79 on 76 million iPhone units but is now calling for EPS of $4.12 and 80 million units.
However, the firm has more offset those higher projections by lowering earnings and unit estimates for the rest of 2018. Overall, Morgan Stanley has reduced its fiscal 2018 iPhone unit sales estimate by 13 million to 250 million. It has also reduced its 2018 EPS estimate by 2 percent to $13 and its revenue estimate by 3 percent to $296.7 billion.
The good news for Apple investors is that Morgan Stanley’s estimates for iPhone unit sales, EPS and revenue are still significantly higher than consensus estimates of 239 million, $11.49 and $237.1 billion.
Morgan Stanley is also anticipating a full-year average iPhone sales price of $802, well above consensus estimates of $731. Huberty says higher-than-anticipated average selling price (ASP) means Apple’s longer-term guidance is safe.
“This significant ASP gap versus consensus provides air cover for any unit softness as iPhone units would have to miss current consensus of 61 million by over 5 million to translate to a guide down, all else equal,” Huberty says.
Based on the latest commentary from Morgan Stanley and other analysts this week, Apple’s second-quarter guidance will likely be more important and more potentially harmful than its first-quarter numbers.
After analyzing supplier data, Bernstein analyst Toni Sacconaghi, Jr. now expects second quarter iPhone unit sales to come up more than 5 million short of current consensus estimates. “Weak iPhone [sales] in the March quarter would portend a very tepid supercycle, and likely be sobering for investors,” Sacconaghi says.
Despite potential near-term bumps in the road, both Morgan Stanley and Bernstein say Apple’s recent weakness is a buying opportunity for long-term investors.
Bernstein has…
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