Apple's near-term future looks murky as consumer spending slows, Bernstein says

Published Mon, Jul 18 202212:12 PM EDTUpdated Mon, Jul 18 202212:53 PM EDT

Apple 's growth may come to a shuddering halt as consumer spending dwindles, according to Bernstein. "We see some opportunity for Apple to continue to outperform through its iPhone launch in September, per its historical pattern, but we believe risk/reward over the next six months to two years is neutral to modestly negative," wrote Bernstein's Toni Sacconaghi in an earnings preview to clients on Monday. Sacconaghi believes earnings per share estimates for fiscal year 2023 "may prove to be too high" given the company's majority focus on consumer revenues. "While it's still too early to call what the iPhone 14 cycle might look like, we continue to believe that AAPL may have "over-earned" in FY 21 (and FY 22) amid work/learn from home and strong consumer spending, which could reverse, particularly as consumers' spending priorities change," he wrote. Shares of Apple have fallen roughly 15% this year as investors continue to shun high-growth areas like technology as recession fears mount. Meanwhile, worries of a potential downturn as inflation hits record highs and the Federal Reserve aggressively hikes rates have spurred concerns of a dropdown in consumer spending. While the outlook for 2023 is worrisome, Bernstein expects Apple will post later this month quarterly earnings of $1.19 per share and revenue of $84 billion. Those estimates are slightly above consensus estimates and represent year-over-year growth of more than 3% on both lines. Even amid these macro conditions, the stock could rally another 13% in the near term, given Bernstein's $170 price target. For the iPhone, Bernstein does anticipate a decrease in shipments over last year and the previous quarter, while revenues should come in flat year over year — amid ongoing supply chain and manufacturing issues. "Our forecast is ~8 points, or $4B, below what normal seasonality would suggest (Exhibit 5, Exhibit 6) which we believe captures the headwinds from supply chain, manufacturing issues, Russia exit as well as currency," he wrote. Apple's Chinese supplier Foxconn famously shut down production earlier this year amid a Covid-related lockdown. The move spurred fears that Apple's supply would take a hit, but Bernstein believes those headwinds from China lockdowns were better than feared. On the other hand, currency issues and a weakening consumer remain ongoing risks for the company into the fourth quarter. — CNBC's Michael Bloom contributed reporting

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