iPhone shipments might continue to fall
Apple (AAPL) stock rose ~13.0% last month, driven higher as broader markets continued to rally. Indexes were at their strongest in June since 1938. Apple stock closed the month at $197.92 and has gained 26.5% this year.
Is Apple’s stock rally short-lived? Apple’s key iPhone business accounts for 55.0% of its total sales. Over the last few quarters, iPhone shipments have declined due to longer upgrade cycles and higher prices.
Deutsche Bank (DB) is cautious about Apple and has initiated coverage on the stock with a “hold” rating. It stated that the high-growth Apple Services business “increasingly faces a law of large numbers dynamic,” and expressed concerns over the possibility of 5G phones’ launch being delayed.
Apple impacted by tariff war
Apple believes it will be impacted by the ongoing US-China trade war, and has urged the White House not to proceed with further tariffs. Donald Trump echoed this sentiment at the recent G20 summit, announcing that the US will not go ahead with additional tariffs on China.
In a letter to US trade representative Robert Lightizer, Apple stated, “U.S. tariffs would also weigh on Apple’s global competitiveness. The Chinese producers we compete with in global markets do not have a significant presence in the U.S. market, and so would not be impacted by U.S. tariffs. Neither would our other major non-U.S. competitors.” Trump’s G20 announcement boosted Apple stock on July 1.
Apple stock’s forward PE ratio is 15.7x. Considering the company’s earnings are expected to fall 4.0% this year and grow 10.3% in 2020, the stock’s PE ratio makes it look overvalued. Analysts expect its sales to fall 3.3% this year and rise 4.4% next year, and for its earnings to expand by 12.0% annually in the next five years. Its dividend yield is 1.7%.
The 38 analysts tracking Apple stock have an average 12-month target price of $212.03, which implies a 7.1% upside from its current price. Apple stock has risen 7.5% in the last year, 107.0% in the last three years, and 112.0% in the last five years.