Why Apple stock doesn’t scare this analyst ahead one big event

Even mighty Apple hasn’t been able to escape the black hole that stocks have been sucked into in recent months.

Apple stock has shed about 22% year to date, under-performing the Dow Jones Industrial Average’s 19.5% decline.

The pressure on Apple’s stock — which comes despite an impressive cash position and sturdy recurring revenue stream via various services — reflects investor concern about the global economic slowdown that reportedly led Apple to cut production on some models from its new iPhone suite.

“Clearly this negative news in light of an already shaky macro and jittery market will send shockwaves across the Street with investors concerned this is another shoe to drop in this dark market with golden child Apple front and center,” Wedbush analyst Dan Ives said of the reported iPhone production cuts.

All that said, Citi analyst Jim Suva is sticking with Apple’s stock into the company’s Oct. 27 earnings despite the rising angst.

“We are not scared of Apple’s stock despite Halloween and investor fears,” Suva bluntly said in a new client note.

Here’s more behind Suva’s hot take on Apple:

Suva is looking beyond a potentially mixed quarter from Apple and locking in on several key longer-term drivers, including the possible release of a foldable iPhone in 2023.

“1) Checks suggest iPhone 14 build is still on track for 2H expectations of ~90 million units, and we expect a foldable phone in 2023; 2) Mix shift continues to skew away from lower-priced Android phones towards more mid-end and premium pricing products; 3) A ~$90 billion (~4% of current market cap) stock buyback, which lends support to shares; 4) Sticky services revenues and potential for more devices-as-a-service offering driving margins higher; and 5) New product category launches such as AR/VR headsets and Apple Car in 2025+, not currently reflected in current estimates/market cap.”

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But about that quarter from Apple set to be reported on October 27…

“We note FX continues to be a significant headwind, and we expect these to be worse than 600 basis points guided, hence our numbers for the Sept quarter are below Street. We expect FX to be partially offset with easing supply constraints better than initially expected. … A more concerning metric is the year over year decline in App Store revenues, which fell by 2% based on Sensor Tower data. Further, broader weakness on advertising is likely to weigh in, but other services (iCloud, AppleCare) will likely offset the decline, as we still expect year over year growth in total for services. We expect the focus to be on Services spending from a growing installed base, coupled with spending on iCloud, AppleCare, and Apple’s own digital media assets. While our estimates are below consensus, we note buy-side expectations have largely been trimmed.”

Other Wall Street analysts appear to be sticking with Apple’s stock, too. Several have come out positive on Apple in recent weeks.

• Evercore ISI’s Amit Daryanani: “Demand has remained strong and is in stark contrast to recent concerns around a slowdown. Our assessment remains – that while units will be stable to slightly up, the real story here is that average selling prices will be up high single digits in second half, enabling upside to not just the September quarter, but likely December quarter.”

• Piper Sandler’s Harsh Kumar: “Both the 87% iPhone ownership and 88% intention to purchase an iPhone metrics are near record highs for our survey. We believe the elevated penetration and intention are important given the mature premium smartphone market. Additionally, these trends are encouraging as the company continues to introduce new iPhones, which could provide a significant product cycle refresh. We think these positive trends can also be a catalyst for further services growth as well, as the install base for Apple hardware continues to grow.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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