Shares in Apple Inc (NASDAQ:AAPL) headed north Friday as the company announced it had reopened all 42 of its stores in mainland China and broker Wedbush repeated an ‘Outperform’ stance on the stock despite saying this remains a “major hand holding time” for investors in the tech titan.
The stores were shuttered over a month ago amid the coronavirus crisis and after China placed curbs on travel and asked residents to avoid public places in late January.
Last month the iPhone giant issued a trading warning due to the impact of the coronavirus, stating “worldwide iPhone supply would be temporarily constrained,” while Chinese government data this week showed Apple sold less than 500,000 iPhones in February in China.
And on March 6, broker Deutsche Bank said it had reduced its March-quarter revenue estimates for Apple to US$60.4 billion, with iPhone units down 44% quarter-on-quarter.
Today, Wedbush said estimating for Chinese iPhone units during this “unprecedented coronavirus outbreak” was an “impossible task.” It expects that units could be down well over 50% year-over-year in the March quarter given the “massive disruptions from the supply chain and especially demand in the region”.
But the store openings in China represent “another important step” towards a “normalization path in this key region for Apple,” said Wedbush, which has a US$4 price target on the stock.
“Now all eyes of the Street are around normalizing the supply chain by late April/early May and trying to better understand the demand trajectory in China over the coming quarters,” it added.
In a note to clients, Wedbush cautioned that “…Chinese demand in the March quarter is not the trend, but a ‘shock event’ that we believe will be short lived as normalized iPhone demand trends start to take hold in 2H in China and across the globe.”
Massive upgrade opportunity
While supply chain issues and China demand are near-term headwinds, the broker said it was mainly focused on the “massive upgrade opportunity” on the horizon with 5G leading the way.
Wedbush analysts said that while the supply chain and demand will move around over the coming quarters, they believe Apple could potentially ship north of 231 million iPhones in full-year 2021 in an upside scenario, which would break its previous record set in full-year 2015.
“In a nutshell, this remains a major hand holding time for investors in Apple and clearly there will be some speed bumps along the way as Cupertino navigates the coronavirus outbreak. However, we continue to focus on the golden installed base, pent up iPhone upgrade demand activity, and 5G super cycle (remains intact) on the horizon as key to our bull thesis, along with the US$50 billion plus annual services business,” it said.
Apple shares in New York on Friday rose 4.8% to US$260.20.
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