Apple Analysts See Production Issues As Transitory, Recommend Buying On Weakness Following Q2 Results

Apple Inc AAPL reported better-than-expected second-quarter earnings and revenues. The sore spot was the warning regarding a $4 billion to $8 billion hit from supply disruptions in the third quarter.

The Apple Analysts:

• KeyBanc Capital Markets analyst Brandon Nispel maintained an Overweight rating and a $191 price target for Apple shares.
• Wedbush analyst Daniel Ives maintained an Outperform rating and a $200 price target.
• Citigroup analyst Jim Suva reiterated a Buy rating and a $200 price target.
• Credit Suisse analyst Sami Badri maintained a Neutral rating and nudged up the price target from $168 to $169.
• Wells Fargo Securities analyst Aaron Rakers maintained an Overweight rating and a $205 price target.
• Rosenblatt Securities analyst Barton Crockett maintained a Neutral rating and a $184 price target.
• Raymond James analyst Chris Caso reiterated an Outperform rating and a $190 price target.
• Needham analyst Laura Martin maintained a Buy rating and a $170 price target.

The Apple Theses:

KeyBanc Recommend Buying Apple Shares: Apple weathered the supply constraints and reported a record active installed device user base that testified to the company's durable business model, Nispel said.

As investors focused on the supply chain impact sounded out by the company, the analyst said Apple had one of the best supply chains in the world. Demand is generally deferred and not destroyed, he added.

"We see fears of supply-side constraints in F3Q as a buying opportunity, particularly as AAPL continues to report record revenues, suggesting growth should be even better," KeyBanc said.

China Issue Transitory, Wedbush Says: The quarter was much stronger than expected, with demand remaining firm despite macro headwinds, Ives said. The analyst expects China issues and supply chain to be peak worry in the June quarter and then subside into the key September/December quarters on the heels of a new iPhone 14 launch, he added.

"Overall, our bullish view of Apple is unchanged as we view the China issues as temporary and not a reason to panic and sell the stock on a non-demand issue," Ives said.

Related Link: Why Apple Has 'Little To Lose, A Lot To Gain' By Expanding Its Services To Android Devices

Supply China Constraints A Good Problem, Citi Says: Supply chain issue is a good problem, reflecting strong demand that is outpacing the supply, Suva said. The long product lead times, no compelling competitive substitution product and a growing installed base that point to future Services revenue all vouch for the fact, he added.

The analyst said he is reducing his near-term financial model but bumping up the long-term model.

"We would use any stock weakness as a buying opportunity," Suva said.

Credit Suisse Delves In On Highlights & Headwinds: Record high Services revenue, including from App Store, Music, Cloud Services and Apple Care, exceptionally strong demand for iPhone 13 lineup, continued growth in installed base and overall revenue performance despite the supply constraints were among the highlights from Apple's quarterly results, Badri said.

The revenue impact from chip shortages and China COVID-19 shutdowns, adverse forex impact, revenue loss from Russia exit and decelerating service revenue were among the headwinds outlined by Badri.

As the company works through the supply constraints, Apple's broader ecosystem is being supported by Services and the growing installed base, the analyst said. Macro uncertainty and inflationary pressures will, however, lead to lower product demand in the calendar year 2022, he added.

Apple Executing Well, Wells Fargo Says: Apple's demand remains strong, barring worsening COVID-19 situation, but supply continues to be challenged, Rakers said. The analyst expects the situation to improve as nearly all plants have restarted production.

"We think Apple is executing well within its constraints and our positive thesis remains intact," the analyst said.

Rosenblatt Details China Concerns: China, Apple's key iPhone production hub and an important source of end demand, is causing issues, Crockett said. As opposed to the $4 billion to $8 billion impact flagged by the company, the analyst estimates a far less $2 billion hit.

China is now not merely a production issue but will likely affect in-market demand, the analyst said, citing Apple's chief executive officer Tim Cook. On a positive note, Cook said nearly all of Apple's final assembly factories have now restarted and reported COVID-19 cases have dropped in Shanghai in recent days.

Related Link: Camera Upgrades, Screen Size Bump, Possible Satellite Connectivity: What This Apple Analyst Sees In iPhone 14 Lineup

Raymond James Says It Would Watch Currency Impact, Consumer Demand: The production issue is transitory and occurring during the weakest seasonal period ahead of fall launches, Caso said: "We think that sets September up well assuming China normalizes."

The analyst also shrugged off the slowing Services revenue growth as an anticipated development.

Caso, however, expects the forex impact and Russia to be more permanent. Apple may need to raise prices in local currency when new products launch in the fall if exchange rates don't change by then, the analyst said.

While stating that production issues aren't alarming, the analyst said he would be closely watching currency issues and the broader fears about consumer demand into the fall.

AAPL Price Action: Friday morning at publication, Apple shares were trading down 1.24% to $161.69, according to Benzinga Pro data