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Apple Stock: This Could Drag The Share Price For Weeks

Repeated downward revisions to iPhone sales estimates by Wall Street analysts are “the gifts that keep on giving”. This could be a problem for Apple stock in the short term.

Apple stock  (AAPL) - Get Free Report has been bouncing up and down, largely range-bound between $140 and $150 per share, for nearly three months.

Despite repeated reports of strong demand for Apple’s flagship products and the favorable macroeconomic developments of late, AAPL trades today at January 2021 levels. The rallies of late last year and the summer of 2022 have faded, as the stock remains in a 23% drawdown.

To me, things are not looking very promising over the next month or two. The problem: Apple’s supply chain issues in China is “the gift that keeps on giving”, as analysts continue to double-click on this hot topic and lower their holiday quarter estimates.

Figure 1: Apple Stock: This Could Drag The Share Price For Weeks

Figure 1: Apple Stock: This Could Drag The Share Price For Weeks

Read also: How Apple’s Supply Chain Has Transformed Since 2019

Apple Weathers Supply Chain Constraints

For context, the Cupertino company has been unable to sell enough iPhone Pro devices lately. Do consumers not want the product? That’s not the problem at all. Rather, Apple can’t get enough of them made and delivered.

Due to China’s strict policy for managing COVID-19 outbreaks, assembly lines in Zhengzhou – the so-called iPhone City – have come to a halt. Workers in the area have also protested for better pay and improved sanitary conditions, even causing conflicts with local law enforcement.

Due to supply disruptions, Apple itself has already warned about lower-than-expected iPhone Pro and Pro Max sales in fiscal Q1. Since then, Wall Street analysts have been scrambling to figure out exactly what to expect on earnings day, which should be about seven weeks away.

Apple Stock: Victim Of “Tough Love”

Last month, I advised readers to expect tough love from sell-side experts towards Apple. That is: while most agree that Apple’s products and services are still highly desirable, and that even owning the stock made sense, many have started to de-risk their revenue expectations for fiscal Q1 of 2023 at least.

Bernstein’s Toni Sacconaghi, traditionally an Apple skeptic, was one of the first to observe in early November that consensus expectation for the holiday quarter and beyond was still too high. JPMorgan’s Samik Chatterjee lowered his iPhone estimates a week later.

Most recently, on December 7, Morgan Stanley completed a second round of estimate cuts. Analyst Erik Woodring “now sees Apple shipping 75.5 million iPhones in the fourth [calendar] quarter of this year, down from a prior estimate of 78.5 million shipments.”

Interestingly, the analyst does not even seem highly confident that sales will match his lowered expectations. Rather, Woodring merely argues that “de-risking estimates today is the prudent decision considering the uncertainty of the production situation in China”.

Why Apple Stock Could Dip Further

To be clear, there is nothing new about Apple’s holiday sales being challenged by the supply constraints in China.

Today, December 7, a “basic” iPhone Pro purchased online to be delivered to Northern Callifornia’s Bay Area would not arrive at the buyer’s residence until December 30 (see below). Soon enough, new transactions will no longer qualify as recognizable revenue in fiscal Q1.

Figure 2: iPhone 14 Pro shipment.

Figure 2: iPhone 14 Pro shipment.

The key problem is that investor sentiment and share price momentum are likely to get dinged every time an analyst comes out with an iPhone estimate revision. When Morgan Stanley published its most recent report, for example, AAPL underperformed the S&P 500 at the opening bell by about 150 basis points.

For this reason, and regardless of what I may think about Apple stock in the longer run, I remain cautious about how shares might perform in the shorter term – say, over the next month or two.

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(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)