In the classic disaster movie, The Towering Inferno, faulty engineering causes an electrical short which sets off a fire in the world's tallest building. Following which, there is initially a sense the accident can be contained, and the fire swiftly put out, but it turns out that was merely wishful thinking and after brief interludes of hope, more setbacks ensue until disaster finally unfolds.
This is an unintended parable for the current state of the economy, so says Monness analyst Brian White, who believes it will take a “deluge of extraordinary forces to put out this blaze and avoid further destruction.”
And as the economy goes up in smoke, the world’s most resilient companies won’t be able to withstand the heat. Even the biggest of them all – Apple (AAPL).
But let’s flashback to better times first. Maybe not for the general populace but definitely for the tech giant. During the pandemic, Apple enjoyed a “powerful tailwind from the work-from-home phenomenon, driving unprecedented demand for Macs and iPads.” Additionally, the lockdowns left scant options for outside entertainment and therefore consumers spent more of their budgets on other Apple products and services.
But while the reopening inevitably resulted in a reversal of these trends – which White’s model accounted for – other “sinister headwinds have since emerged, including a sharp downshift in the economy, disruptive inflationary pressures, and a precarious geopolitical environment.”
Accordingly, while White believes Apple’s portfolio has “never been stronger and its platform more ubiquitous,” it stands to suffer from these macro developments.
With this in mind, White has now slashed his 3QFY22 (June quarter) revenue outlook from $89.30 billion to $85.88 billion (a 5.5% year-over-year increase) and lowered the EPS projection from $1.32 to $1.24. For FY22, the revenue forecast has been pulled back to $397.52 billion from the prior $408.60 billion and the EPS estimate has been lowered from $6.44 to $6.20.
Along with the downward revisions, White cut his price target on Apple shares, from $199 to $174, suggesting shares have 17% upside potential in the year ahead. White’s Buy rating stays as is. (To watch White’s track record, click here)
The rest of the Street is optimistic about Apple, with its Strong Buy analyst consensus breaking down into 22 Buys and 6 Holds. At $183.05, the average price target brings the upside potential to 23%. (See Apple stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.