Analysts Break Down Key Issues From Apple's Q4 Print

Apple, Inc AAPL is getting crushed Friday following a disappointing fourth-quarter earnings report. Apple exceeded EPS and revenue expectations for the fourth quarter, but its first-quarter revenue guidance of between $89 billion and $93 billion was short of consensus expectations of $93.02 billion.

Wall Street analysts remain mostly positive on Apple in the near term and generally see the sell-off as a buying opportunity for investors. Here’s a sampling of what some analysts had to say about Apple following the report.

Pricing Problems

KeyBanc analyst Andy Hargreaves said Apple’s revenue and profit growth are now contingent on pricing, which could cause major problems in 2019.

“We continue to believe raising prices further will be difficult beyond F2019, which suggests the risk of decline in F2020 profits,” Hargreaves wrote.

Bank of America analyst Wamsi Mohan said Apple’s problems may not end in the first quarter.

“[W]e are incrementally concerned that not all the weakness is capture in N/T and we are likely to see further negative estimate revisions,” Mohan wrote.

Dan Morgan, senior portfolio analyst at Synovus Trust, told CNN Wall Street is concerned about the long-term impact of slowing global growth, trade war tariffs and foreign exchange headwinds. Morgan said that in light of all these issues, Apple's guidance is "discouraging."

Less Transparency

Wedbush analyst Daniel Ives said the market sell-off is primarily driven by concerns over the announcement that Apple will no longer be disclosing unit sales or average sales price numbers for iPhones or other major products.

“The Street will find this a tough pill to swallow this morning as the transparency of the Cupertino story takes a major dent given that tracking iPhone units has become habitual to any investor that has closely followed the Apple story for the last decade+ and is critical to the thesis,” Ives wrote.

Loup Ventures' Gene Munster said the new reporting methodology is part of Apple’s long-term strategy to transition away from hardware sales and toward “Apple-as-a-service.”

“This move should not be a surprise, given Apple’s efforts over the past four years to encourage investors to look more at its Services segment and, separately, to measure the iPhone on an annual basis rather than quarterly,” Munster wrote.

FutureWealth CEO Jay Srivatsa told CNBC the decision to stop reporting unit sales is likely a sign that hardware revenue will no longer be a major growth source in coming years.

"It becomes a services business. I think part of the reason why they’re no longer going to split it up is because of that transition that the company’s going to go through," Srivasta said.

Buy The Dip

Morgan Stanley analyst Katy Huberty said rising average sales prices and impressive Services segment growth were offset by uncertainty in China.

“Downtick on emerging market trends & disclosure changes create noise near-term, but better ASPs & sustained Services growth support our view of Apple monetizing a loyal & increasingly engaged user base,” Huberty wrote.

Tigress Financial analyst Ivan Feinseth said investors shouldn’t hesitate to buy the dip.

“I believe any weakness when the stock opens today is a buying opportunity as overall business trends continue to remain strong and Apple has traditionally given conservative Q1 guidance which is their key holiday quarter,” Feinseth wrote.

Ratings And Price Targets

• Bank of America downgraded Apple from Buy to Neutral rating with a $220 target.
• Morgan Stanley has an Overweight rating and $226 target.
• Wedbush has an Outperform rating and $310 target.
• KeyBanc has a Sector Weight rating.

At time of pubcaltion Friday morning, Apple's stock was trading down 6.4 percent at $207.87.

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