Why Apple Analysts Prefer to Look Past Supply Chain Challenges, Remain Bullish After Q4 Revenue Miss

An Apple logo hangs above the entrance to the Apple store on 5th Avenue in the Manhattan borough of New York on July 21, 2015. (Mike Segar/Reuters)

Apple Inc. shares have come under selling pressure after the company’s fourth-quarter revenues missed expectations amid supply chain constraints.

The Apple Analysts

Morgan Stanley analyst Katy Huberty maintained an Overweight rating on Apple shares and reduced the price target from $166 to $164.

Oppenheimer analyst Martin Yang reiterated an Outperform rating and raised the price target from $165 to $170.

Wells Fargo Securities analyst Aaron Rakers maintained an Overweight rating and $165 price target.

Raymond James analyst Chris Caso reiterated an Outperform rating and $185 price target.

Needham analyst Laura Martin maintained a Buy rating and $170 price target.

BofA Securities analyst Wamsi Mohan reiterated a Buy rating and $160 price target.

What Morgan Stanley Learned From Apple’s Q4

Taking into account the $1.5 billion worse-than-expected supply chain headwind, September quarter revenues would have been in line with the consensus estimate of $84.8 billion, Morgan Stanley analyst Huberty said.

Additionally, Morgan Stanley’s December quarter revenue estimates, though down from its previous forecasts, are in-line with the consensus projections that were estimated ahead of the print, despite greater component shortages, the analyst said.

“Apple just wrapped up its most prolific year in recent history, growing revenue, operating income, and EPS 33 percent Y/Y, 64 percent Y/Y and 71 percent Y/Y, respectively, despite pandemic limitations,” she said.

The analyst said she sees reasons to be bullish heading into fiscal year 2022. The 2 percent reduction in Morgan Stanley’s revenue and EPS estimates, the analyst said, is a result of more transitory issues.

Demand remains robust, and any dissipation of supply chain headwinds is likely to drive upside to estimates, the analyst said. As near-term regulatory and supply chain headwinds dissipate, investors will begin to refocus on what is likely to be a strong fundamental outlook, she added.

Tigress Views Any Weakness As Buying Opportunity

Supply chain issues weighed on what should have been strong results and a positive outlook into the holiday season, Tigress Financial’s Ivan Feinseth said. Apple, however, continues to highlight extremely robust demand for all of its key products, including its iPhone, the analyst noted. The company will eventually ramp up production to meet what will continue to be extremely strong demand, he added.

Apple still saw strong fourth-quarter results with revenue increasing 29 percent year-over-year to $83.4 billion, which however, was slightly below the $84.7 billion consensus estimate, the analyst said.

“I continue to believe significant upside exists and view any weakness as a buying opportunity,” Feinseth said.

Oppenheimer Is Bullish On Apple

Apple’s fiscal-year fourth quarter broke historical records again, with Mac and Services at all-time highs, and other categories reaching a fourth-quarter high, Oppenheimer analyst Yang said.

Apple’s active installed base and paid subscriber count both achieved all-time highs, the analyst said. Gross margin remained strong, up over 400 basis points, he added.

“While supply crunch remains a headwind for the next couple of quarters, we expect Apple will accelerate its share gains (primarily in handsets and notebook) due to its superior supply chain management and scale advantage,” Yang said.

Despite near-term supply challenges, Oppenheimer said it remains bullish on Apple. The firm sees the strong fundamental demand across product categories, chip supply constraints, and Apple’s superior supply chain management and scale providing the ideal setup for Apple hardware to gain share over its competitors in the next 12 months.

Wells Fargo’s Key Takeaway From The Quarter: Apple’s Services revenue of $18.277 billion came in about $650 million above consensus estimates, with subscribers up about 160 million year-over-year, Wells Fargo analyst Rakers said.

Apple reported a $6-billion impact from silicon shortages and COVID-related disruptions, with impact centered on legacy nodes silicon shortages and manufacturing in Southeast Asia, the analyst said. The company expects the impact to increase on a dollar basis in the December quarter despite an improved overall position, he added.

The company noted a robust demand environment for the iPhone and said channel inventory remains below its targeted range, the analyst noted.

“Our overall thesis remains intact underlined by stronger-than-expected Services growth and strong demand across the portfolio,” Wells Fargo said.

Fundamental iPhone Demand Remains Strong, RayJay Says

Apple is still guiding to “solid” year-over-year growth in all product categories except iPad, RayJay analyst Caso said. This, the analyst said, is a strong outcome considering tough comps from last year’s late iPhone launch, he added.

The analyst, therefore, maintained his above-consensus December quarter revenues estimates largely unchanged.

The firm also raised its March quarter estimate, assuming Apple catches up on unfulfilled demand early next year.

“Net, our F22 revenue moves higher and remains well above the Street since we believe fundamental iPhone demand remains strong, and iPhone mix remains favorable,” RayJay said.

Needham’s Takeaways From Earnings Call

Despite the revenue headwinds from chip shortages and supply chain issues expected to be higher than $6 billion in the December quarter, Apple expects healthy revenue growth, including growth in every product category, other than iPads and Macs, Needham analyst Martin said.

Paid subscribers at the end of the September quarter stood at 745 million, up 45 million at the end of the June quarter, the analyst noted.

Nearly every service, including music, video, advertising, Apple care, payments, etc, hit record revenues, Martin said. The App Store hit a September revenue record and services gross margin reached 70.5 percent, she added.

Apple said its consumers love iOS 14.5 and that “privacy is job 1,” that privacy is an iOS user’s basic right to choose and other companies’ business models aren’t its concern, the analyst said.

Apple’s Risk/Reward In Balance?

The results and guidance are a precursor to more inline results relative to consensus vs. the significant beats over the past several quarters, BofA analyst Mohan said.

“We remain Neutral on risk/reward balance, where negative revisions could create a headwind to the multiple,” the analyst said.

AAPL Price Action

At last check, Apple shares were slipping 2.16 percent to $149.27.

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