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Apple shares have lost more than quarter of their value in less than two months, but one of Wall Street's top analysts on the stock explained why history is against a turnaround any time soon.
"Sell-side estimates have only been revised downwards by -0.8% so far, and history suggests that the stock is unlikely to inflect until estimates stop coming down," Bernstein's Toni Sacconaghi said in a note to investors Wednesday.
Sacconaghi looked at the last three times in the past decade when Apple's stock has unperformed. The three downturns Sacconaghi identified are tied to the life cycle of iPhone products: The iPhone 5, the iPhone 6S and the beginning of the iPhone X. Of the lessons to be learned from prior stock downturns, Sacconaghi said Apple's stock is "typically anticipatory of estimate declines," as well as has a high correlation to Wall Street's "next-12-month EPS estimates."
"Perhaps most importantly, Apple's stock price has historically bottomed only once sell-side EPS estimates have bottomed," Sacconaghi said.
Apple's full year 2019 earnings are about $12.34 a share when comparing the current product cycle to the iPhone 6S cycle in 2016, according to Sacconaghi. Those earnings would be about 7 percent below Wall Street's current consensus for next year, Sacconaghi said.
Bernstein's analysis does not include any potential hits to Apple from tariffs. The company's stock slid on Tuesday after President Donald Trump suggested the U.S. could place a 10 percent tariff on iPhones and laptops made in China.
"We should note that neither our current estimates nor our downside scenario incorporates any potential impact from tariffs," Sacconaghi said.
Apple shares have fallen more than 20 percent this month as of Tuesday's close of $174.24 a share.
Bottom line: Until analysts are done cutting their earnings expectations on the stock, expect more weakness.