Apple shares could fall as low as US$120 after shock profit warning, claims RBC

Apple Inc (NASDAQ:AAPL) shares took a beating in after-hours trading in New York after the tech giant slashed its guidance – something it almost never does.

The iPhone maker had expected to generate revenue of around US$91bn in the final quarter of 2018 but said late last night that that figure will be nearer to US$84bn.

Chief executive Tim Cook highlighted a number of pain points, including sales in China, which have been affected by tensions surrounding the ongoing US-China trade war.

READ: Apple warns 1Q earnings will miss forecasts

The stock dropped almost 8% to US$146 overnight, but analysts at RBC Capital think the fall might have a little way to go yet.

“The stock after hours is trading around US$146 and we are modelling AAPL’s EPS to be ~$12 in FY19,” read a note to clients.

“Historically, the stock troughed around early-2013 period at ~9-10x P/E that would imply the support would be closer to US$120.”

“Though we would note AAPL did not have a strong capital allocation program at that point, which should provide a better valuation support. Assuming 10x is the support this time around (ex-cash) it would peg the support for the stock at US$140.”

If RBC’s bear case scenario plays out, Apple shares would hit levels not seen for two years. Even the mid-case scenario – US$140 – would see the stock sink to 18-month lows.

Silver linings…

Despite slashing their price target for the stock to US$185 from US$225, the Canadian investment still has Apple at ‘outperform’ and highlighted a few silver linings in Wednesday’s announcement.

“Non-iPhone revenues were up +19% y/y led by strong services and wearables, and implying iPad and Mac were flattish.

“AAPL services continued to outperform expectations, generating US$10.8bn in revenues or up +28% y/y and install base increased by 100mln users in last twelve months. Wearables also posted very strong growth of +50% y/y led by Apple Watch and AirPods.”

Story by ProactiveInvestors