The reason? Wall Street has begun reporting on the demand for the iPhone 14 family and the new Apple Watch lineup. The early readings have been encouraging. Could this be the beginning of a rally in AAPL shares over the next days and weeks?
(Read more from Apple Maven: Apple’s iPhone 14 Launch: The Biggest Surprise For Investors)
iPhone 14: Strong Out of the Gate
Not one, but at least two analysts came out on Monday with bullish news on Apple’s 2022 suite of smartphones and smartwatches. Wedbush’s Dan Ives, the most optimistic of sell-side experts with a price target of $220 on Apple shares, chimed in first.
Based on his September 10 report, “so far demand and orders for iPhone 14 are tracking slightly ahead of iPhone 13 and are tracking ahead of our expectations out of the gates.”
Better yet, Mr. Ives believes that the Pro and Pro Max mix of iPhone 14 sold so far has been very high, at an estimated 80% to 90%. This bodes well for ASP (average selling prices), which in turn can be good news for both revenues and margins in fiscal Q1.
Then, JPMorgan’s Samik Chatterjee jumped in and provided additional color. According to the analyst:
“Lead times for the two Pro models are already more extended relative to last year. [...] Amongst the remaining products, lead-time based demand indication for the Apple Watch Ultra is quite strong as well.”
Samik pointed at extended lead times, which in turn could mean hotter-than-expected demand, for the iPhone 14 Pro and Pro Max in the US and in China. He estimates that these two markets alone account for roughly half of global iPhone shipments.
Is This Good News for AAPL Stock?
The most important question for investors is whether the early read on product demand could translate to further share price appreciation. Since the intraday low on September 7, the day of the iPhone 14 launch, Apple stock has already climbed 6% in only three trading days.
From the reports above, especially Dan Ives’ account of demand that is “slightly ahead” of last year’s, I would be careful not to project unrealistically upbeat results. Keep in mind that iPhone revenues in fiscal 2021 jumped by a whopping 47% YOY (see sales growth trend by quarter below), so the comps should be very tough this year and next.
Keep in mind, however, that stock prices tend to move not on absolute results delivered, but on actual financial performance relative to expectations. So the tough question to answer is: have analysts and investors already priced in a robust iPhone 14 cycle?
According to Yahoo Finance, consensus revenue growth for fiscal 2023 is just short of 5%. Considering the supply chain issues impacting the iPad, Mac and Watch, I suspect that much of this top line growth is expected to be supported by the iPhone.
That being the case, I am skeptical of an iPhone 14-driven rally in the near term. The 6% spike in share price (or about $150 billion in market cap) since midweek last week could be about as much of a bull run as we may see for now.
Still, a positive early read on iPhone 14 and Watch sales should be welcomed by Apple investors as a sign that the Cupertino company may have hit this one out of the park once again.
Land a Top Equity Research Job with Peak Frameworks
Equity research is a great career path that combines deep industry analysis and financial modeling, while exposing you to the strategic frameworks of many different types of investors in the stock market.
Many students have used the Peak Frameworks Equity Research course to break into the industry out of school, or to transition into the field from a non-finance career path. The lead instructor has experience working at Goldman Sachs and J.P. Morgan and was involved in the recruiting process at both banks, so you’ll get a comprehensive view of the skills you need to get and prepare for an interview.
To learn more, click on this link and use the code APPLEMAVEN10 for 10% off the course.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Apple Maven)