Apple’s ‘Short-Term Pain’ Sets Stock up for Long-Term Gain
A bad week for Apple Inc. investors is getting worse Friday, even as the technology giant’s new iPhone is released, but some analysts say the stock’s weakness just makes it more attractive.
The stock AAPL had already lost 4.1% this week through Thursday, putting it on track for the worst-ever weekly performance before an iPhone product launch. It slumped another 1.6% in midday trade Friday, putting it on track for a third-straight loss, and the lowest close since Aug. 1.
The 5.6% decline this week would be the biggest weekly percentage decline since it tumbled 11.3% during the week ending April 29, 2016. The $8.95 price decline has shaved about 62 points off the price of the Dow Jones Industrial Average, which has gained about 90 points.
The weakness reflects concerns that demand for the new iPhone 8, Apple Watch Series 3 and Apple TV 4K, which become available Friday, will disappoint, as many wait for the iPhone X due in November. That comes after reports of technical trouble with the Watch, and concerns over competition from Alphabet Inc.’s GOOGL Google.
But analyst Michael Olson at Piper Jaffray said he believes that any weakness in early sales of the iPhone 8 could be just a case of “short-term pain for long-term gain.” He affirmed his overweight rating on Apple’s stock, but raised his stock price target to $196, which is 28% above Thursday’s closing price of $153.39, from $190.
“It’s noteworthy that a mix shift towards iPhone X, even to the detriment of near-term iPhone 8 units, is positive for Apple,” Olson wrote in a note to clients.
Olson reworked the timing of his iPhone sales estimates, moving 500,000 units from the September quarter into December and into March 2018. That should actually boost Apple’s earnings, as Olson estimates the retail blended average selling price for the iPhone X will be 32% higher than the iPhone 8 or 8 Plus.
“Despite potential for iPhone 8 to see a short-term negative impact from customers waiting for iPhone X, we recommend owning [Apple’s stock] on potential for a strong overall iPhone cycle, rising ASPs and a favorable services revenue trajectory,” Olson wrote.
Apple’s stock has rallied 5.3% over the past three months, while the technology-heavy Nasdaq-100 Index NDX has gained 2.7% and the Dow Jones Industrial Average DJIA has advanced 4.5%.