One technology analyst had some unwelcome news for Apple investors as Wall Street digests some negative earnings commentary from CEOTim Cook. That news: This setback could be a good thing.
Shares of the iPhone maker continued to sink, down almost 5 percent mid-day Wednesday amid a slew of analyst downgrades after Tuesday nights’ earnings. But some people were cheering that the uncertainty that was dragging the stock has finally lifted, Munster told CNBC’s”Squawk Alley.”
“Investors don’t want to hear this today, but this is actually what a lot of people wanted,” said Gene Munster, managing director and senior research analyst at Piper Jaffray. “And the reason is, if you have the foresight to look to the middle and back half of this year, the comps are going to get easier.”
Apple on Tuesday reported fiscal first-quarter earnings that beat analyst estimates, but revenue and sales of its most important product came in below expectations. The company reported that it sold 74.8 million iPhones in the quarter, compared with expectations of about 75.46 million.
The company also prepared investors for more moderate growth, saying it expected second-quarter revenue of $50 billion to $53 billion. The average analyst estimate had been for $55.61 billion, according to StreetAccount.
Apple’s leadership said something negative about once every two minutes during Tuesday night’s investor conference call, by Munster’s calculation.
“That aggressiveness in how negative they are about the future has really stung investors today, and made them question whether the June numbers are now at risk,” Munster said.
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The real game changer was Apple’s commentary around China, FBR Capital Markets analyst Daniel Ives said Wednesday. Ives reduced his price target on shares of Apple to $130 from $185.
Apple began to see “some signs of economic softness” in its Greater China region earlier this month, according to Cook. More than 24 percent of Apple’s fourth-quarter revenue — $12.52 billion of $51.50 billion — came from Greater China.
“You’ve got to take off the rose-colored glasses,” Ives told CNBC’s”Squawk Box.” “This was definitely a bit of a gut punch for the bulls.”
If you are going to buy Apple stock now, it better be for the right reasons, said Aswath Damodaran, finance professor at the Stern School of Business at New York University. His reason: It’s a cash machine that keeps on giving.
“Don’t do it because you expect it to become a growth company again. It’s not going to become a growth company,” Damodaran told CNBC’s”Squawk on the Street.” “It’s really more like [tobacco company] Altria — it’s a dividend-paying, solid cash cow. I mean, people are as addicted to their iPhones as they are to cigarettes.”
It might take a while for investors to swallow the transition from growth to value, Damodaran said, comparing Apple to fellow mature tech company Microsoft. But with around $200 billion in cash, Apple could keep paying dividends for the next 25 years and not feel the pain, he said.
In contrast, FBR believes the growth issues are part of a near-term situation that can be resolved at the start of Apple’s next iPhone cycle.
“Ultimately, it comes down to iPhone 7. That’s really what you’re really hanging your hat on,” Ives said, noting that growth of 240 million units could be on the horizon.
Apple’s most recent iPhone model, the 6S, has been viewed by many analysts as boasting too incremental an improvement over prior iterations to warrant an upgrade. Cook said on the company’s earnings call that he expects iPhone unit sales to decline in the fiscal-year second quarter.
“It’s a hand-holding period. You don’t put up the white flag. We view it as similar to two years ago, from [iPhone] 5S to 6. It’s a turbulent period, but I think brighter days are ahead with iPhone 7, as well as what Cook does with $200 billion in cash,” Ives said, referring to Apple’s $216 billion cash pile, which grew 5 percent from the previous quarter.