Apple (AAPL): Morgan Stanley cuts iPhone estimates again, expects revenue miss

December 7, 2022 7:32 AM EST
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Morgan Stanley analyst Erik Woodring reiterated an Overweight rating and a $175 per share price target on Apple (NASDAQ: AAPL) stock despite lowering FQ1 revenue estimates for the second time in a short period of time.

The analyst cut estimates for FQ1 iPhone shipments by 3 million to 75.5M, which brings the quarterly projection for revenue down by 3% to $120.3 billion. The new forecast for iPhone shipments implies an 11% drop year-over-year.

Woodring doesn’t expect Apple will be able to recover lost units in its March quarter, hence leaving the FQ2 forecast for iPhone shipments unchanged.

Morgan Stanley analysts made the second cut to iPhone and revenue estimates for this quarter to account for a slower China production ramp. The broker previously slashed its forecast by 1.5M iPhone 14 Pro units and 1.5M iPhone 14 Pro Max units, as far as Apple’s first fiscal quarter is concerned.

Net-net, Woodring projects earnings per share of $1.88 on revenue of $120.3B for the December quarter, which is 3% and 6% below consensus, respectively. Still, analyst remains positive on Apple stock amid iPhone demand durability.

“While we might be taking an overly conservative approach given 1) our Greater China Hardware team estimates just a 1-2M unit incremental shortfall from the slower iPhone production ramp, 2) our prior iPhone shipment forecast was already 3M units below what iPhone builds implied in the Dec Q, and 3) we still think its more likely iPhone demand is deferred vs. destroyed, we also believe more thoroughly de-risking estimates today is the prudent decision considering the uncertainty of the production situation in China,” the analyst explained in a client note.

As Apple stock moved lower in recent weeks to reflect lower iPhone shipments from China, Woodring expects the near-term focus for investors will be on whether the Cupertino-based tech titan can recover lost shipments in the upcoming quarters.

“We believe demand for the iPhone 14 Pro/Pro Max remains solid, supporting the view that lost demand in December is more likely to be deferred into March than destroyed,” Woodring concluded.

Apple stock fell 2.5% yesterday to close at $142.91.

By Senad Karaahmetovic

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