Don't Expect Apple Catalysts To Materialize Until Late Summer, Says JPMorgan

Apple Inc. AAPL reported weak quarterly results and announced soft guidance. JPMorgan’s Rod Hall reiterated an Overweight rating for the company, while reducing the price target from $141 to $125. The analyst mentioned that Apple’s performance is likely to have been expected by a steeper-than-anticipated decline in demand in Hong Kong and RoAPAC.

What The Numbers Say

Apple witnessed declining revenue in both the US and Europe. The company guided to FQ3 revenue of $41bn - $43bn, with the midpoint missing JPMorgan’s estimate by 20 percent. Apple’s projection for FQ3 iPhone units came in 17 percent short of the earlier estimate, while the midpoint of the implied GAAP EPS was lower than the estimate by 32 percent.

Analyst Rod Hall mentioned that the guidance miss was on account of inventory reduction. He wrote, “CEO Tim Cook noted on the call that the company plans to lower its channel inventories in the June quarter by over $2bn. We believe that this is due to lower demand than anticipated in key regions in FQ2 due to both FX and macro.”

The EPS estimates for 2016 and 2017 have been reduced from $9.71 to $8.66 and from $10.67 to $8.72, respectively. Hall commented that while Apple's stock already reflects much of the bad news, any catalysts are unlikely to materialize until late summer.