Apple Supplier Stocks Could Suffer Short-Term, But KeyBanc Still Likes These

It has been nearly a month since Apple Inc. AAPL's latest iteration of iPhone, the iPhone X, became available. This feature-rich phone, priced at an exorbitant premium, is being received well, although some company-specific issues have come to plague it.

The Analyst

KeyBanc Capital Markets analyst John Vinh looked into these issues and analyzed their implications for Apple suppliers.

Here's Vinh's ratings and price targets for some key Apple suppliers.

• Broadcom Ltd AVGO – Overweight/$290
• Cirrus Logic, Inc. CRUS – Overweight/$70
• Qorvo Inc QRVO – Sector Weight
• Skyworks Solutions Inc SWKS – Overweight/$125
• Synaptics, Incorporated SYNA – Sector Weight

The Thesis

Despite the supply of iPhone X improving, it still remains constrained, and iPhone 8 inventories are elevated, Vinh said in a Thursday note. Accordingly, the analyst sees limited catalysts for the Apple supply chain in the near term.

The inability of Apple to normalize supply during a key holiday selling period provides less scope for upside relative to forward estimates, Vinh said.

Even as iPhone 8 inventories are increasing, KeyBanc said demand for the iPhone 7 is normalizing amid the iPhone X launch and the demand from consumers, who awaited the initial price drop. The build up in iPhone 8 inventories is despite demand tracking ahead of expectations.

The firm believes the current normalized inventory levels for the iPhone 7 pose modest risk of an inventory correction.

"We expect supply chain stocks to remain range bound until we can better assess true demand for the iPhone X," KeyBanc said.

The firm recommends investors to continue to own Broadcom, Cirrus Logic and Skyworks Solutions.

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