Apple, one of the leading technology companies, is experiencing a challenging week leading up to the highly anticipated launch of the iPhone 15. The company's shares have been dropping, adding to the losses from the previous day.
Investors are carefully considering the potential impact on Apple's sales in China due to a ban on government officials using iPhones for work purposes. However, this is counterbalanced by the excitement surrounding the upcoming release of the iPhone 15, set to take place on Tuesday.
In early trading, Apple shares experienced a 3.6% decline and reached a value of $176.27. Despite this recent downturn, the stock has still achieved a remarkable 41% increase throughout this year, as of Wednesday's close. The question now is what lies ahead for Apple's stock. Both technical analysis and fundamental business indicators point towards potential losses.
John Roque, senior managing director at 22V Research, believes that Apple's stock could potentially drop to $150 based on the company's stock chart and historical corrections following significant gains. Over the past decade, Apple has experienced an average price correction of approximately 35%, according to Roque. However, he does not suggest that a similar drop will necessarily occur this time around. A milder correction seems more likely considering that the stock's weekly upward momentum peaked in late July and has steadily declined since then.
For investors who prefer to rely on fundamental analysis, it is crucial to take into account the potential consequences of the Chinese government's ban on iPhones for employees of government agencies. According to Wedbush's Daniel Ives, this restriction would only result in a decrease of less than 500,000 units sold. Ives predicts that Apple will sell around 45 million iPhones in China over the next year, benefiting from "massive share gains" in the country, partly thanks to the launch of the iPhone 15.
With a positive outlook, Ives has set a 12-month target price of $230 for Apple shares while offering an Outperform rating for the company.
The Potential Impact of Chinese Bans on Apple's Earnings
There is speculation that China may expand its ban on Apple products, extending it beyond central government officials to include workers at state companies. While the extent of these potential restrictions remains uncertain, such a move would impact millions more people.
One company that could potentially benefit from the ban is Huawei. Facing setbacks due to U.S. sanctions, Huawei aims to regain market share with its competitive Mate 60 smartphone line. These devices offer a more affordable alternative to Apple's products, positioning Huawei as a strong contender in the market.
According to analysts from BofA Securities, if Huawei were to regain 10 million units per year from iPhone sales in China, it would result in an 11-cent decrease in Apple's earnings per share in 2024. However, if Apple were to lose the 30 million units it gained in China since the sanctions on Huawei began in 2019, the impact would be much larger at 34 cents per share.
At present, BofA Securities predicts Apple's earnings per share to reach $6.46 in 2024. Based on this forecast, and considering the stock's current valuation of around 27 times that estimate, a decrease of 34 cents in EPS would correspond to a valuation of approximately $165.
It is important to note that these calculations are rough estimates and do not represent BofA Securities' base case scenario. The analysts maintain a target price of $210 for Apple's stock. The launch of the highly anticipated iPhone 15 or a potential relaxation of the Chinese bans could significantly influence the stock price, possibly surpassing expectations.
While uncertainties remain, the current situation suggests that bears may gain some traction when it comes to Apple's stock performance.
