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iPhone Concerns Aside, 'Additional Wrinkles' Could Weigh On Apple's Stock

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Apple Inc. AAPL 7.08% reported a steep revenue decline for the March quarter. Brean Capital’s Ananda Baruah maintained a Buy rating for the company, while reducing the price target from $155 to $125. The analyst commented that Apple’s attempts to reduce channel inventory and iPhone SE ASP mix pressure could weight on the stock.

Apple reported its March quarter revenue at $50.6B, missing the Street expectation of $52.0B. The company guided to June quarter revenue of $41.0B - $43.0B and GM of 37.5-38.0 percent, both of which were below the Street estimates of $47.3B and 39.3 percent.

Pressure On Apple Stock

While Apple’s March quarter iPhone units were in-line with expectations and the June quarter projection implied by guidance is also broadly in-line, “we anticipate that additional wrinkles could weigh on the stock for the foreseeable future,” analyst Ananda Baruah wrote.

Baruah mentioned that Apple’s moves to lower channel inventory by $2B, which may translate to 2.5M - 3M units, as well as iPhone SE ASP mix pressure had resulted in:

  1. The June quarter revenue guidance being lower than Brean Capital’s below-Street estimate.
  2. The June quarter GM guidance falling short of what “even our cautioned stance imagined,” the analyst wrote.
  3. Apple’s guidance of flat opex at ~$6.0B, despite a 17 percent sequential decline in revenue.

“It may not be until we enter August that AAPL estimates have appropriately digested its various nuances, and that AAPL can begin to beat revenue and meet GM,” Baruah commented.

DateFirmActionFromTo
Apr 2016Brean CapitalMaintainsBuy
Apr 2016BarclaysMaintainsOverweight
Apr 2016CitigroupMaintainsBuy

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