Apple shares may fall to $160
Apple shares, which have fallen about 7% since the US made moves to curb Huawei Technologies earlier this month, have a near-term floor at $160, about 10% below price they were trading yesterday, according to analysts at Morgan Stanley.
“We expect shares to remain choppy,” analysts led by Katy Huberty wrote in a note.
“Near term, the greatest risk to Apple is that Chinese consumers meaningfully slow their purchases of Apple products, which would likely cause another round of estimate cuts,” she said.
The analysts estimate that the iPhone giant could see a 23% hit to fiscal 2020 earnings in a worst-case scenario of the US placing a blanket 25% tax on all Chinese imports.
A profit reduction of around 19% is, however, more likely, given that Apple may raise prices to mitigate the impact, they said.
Morgan Stanley doesn’t expect China to formally ban iPhone sales, given that the devices are produced in the country.
Analysts have been seeking to quantify the potential impact that Chinese retaliation could have on the company, with Goldman Sachs last week estimating a 29% hit to earnings if China were to ban sales of Apple’s products, and brokerage Cowen saying that fiscal 2020 profit could fall 26% on an iPhone ban.
Morgan Stanley has reiterated its overweight recommendation on Apple though the analysts trimmed their price target to $231 from $240, citing peer multiple contraction.
However, Bank of America analyst Wamsi Mohan takes a different view.
Apple’s slump thus far this month could mean that risks from an escalating US trade war with China are already reflected in the stock, he said.
“We view risks related to China tariffs as priced in,” Mr Mohan wrote in a note to clients. He affirmed his buy rating and $230 price target, a view that implies upside of nearly 30%.
The firm’s positive stance stems from a “stabilisation of iPhones, capital return programme, ramp in services and potential for new products,” Mr Mohan said.
Shares of Apple rose as much as 1% in the latest session. The stock remains down about 16% from its May highs.
The recent pressure has come amid the Trump administration’s blacklisting of Huawei Technologies.
