3 Apple Analysts On Guidance Cut: It's Not Fatal

Apple Inc. AAPL shares dropped Tuesday after management trimmed second-quarter outlook to account for coronavirus threats.

After a long shutdown, Chinese manufacturing partners have relaunched iPhone production but are ramping slower than expected, leading to short-term global supply constraints. At the same time, local demand remains low. All Apple stores and most partner stores have been closed in China and are beginning to reopen at reduced hours to reduced traffic.

Analyst First Takes

The threat is real. Loup Ventures Managing Partner Gene Munster suspects that more than 60% of Apple’s revenue is exposed to the Chinese supply chain or manufacturing industry. Piper Sandler anticipates a 20% miss on China revenue and 10% miss on non-China iPhone sales. Bank of America forecasts a $3 billion to $6 billion revenue hit.

However, the analysts deem the disease generally manageable.

“Given the black swan nature of COVID-19, this disappointment should be kept in the context that this is not as negative as the Dec-18 miss,” Munster wrote in a note. “...we believe, eventually, Apple’s business will return to normal in China and the company will resume its 5% plus revenue growth cadence.”

See Also: Why Apple's Coronavirus Warning May Be Better Than Expected

Analyst Consensus: It’s Not Fatal

Bank of America considers the supply disruption temporary and cut only its second-quarter sales forecasts.

“Some of that demand may be made up in F3Q, or in F21,” analyst Wamsi Mohan wrote in a note. “However, we conservatively just reduce F2Q units. We view the coronavirus related weakness as transitory and it does not change our thesis on Apple.”

Piper Sandler had a similar assessment and considers the immediate pullback as a buying opportunity.

“The iPhone supply constraints in the current quarter could result in pent-up demand for future quarters,” analyst Michael Olson wrote.

The worst of the expected effects seem to be shipping delays.

“We’ve been tracking iPhone availability in 13 countries and have yet to see any measurable disruption in estimated shipping times,” Munster wrote. “This leads us to believe Apple has now drawn down its channel inventory, and we’ll begin to see lengthening online lead-times in the weeks ahead.”

A Distraction From The Real Story

In the big scheme of things, the coronavirus seems a blip of low importance.

“We believe the launch of a 5G iPhone could drive upgrades, especially as 5G network infrastructure improves and apps that leverage 5G permeate the App store,” Olson wrote.

The Ratings

The analysts agreed the threat did not affect the company ratings. Bank of America maintained a Buy rating and $350 price target, and Piper Sandler maintained an Overweight rating and $343 target.

At time of publication, Apple traded down 2.4% at $317.20.