Apple Stock: iPhone Shortfall, Don't Overreact (NASDAQ:AAPL) - Seeking Alpha

PhillDanze

To accidental Apple Inc. (NASDAQ:AAPL) is simply a bellwether is an understatement. Even successful a unspeakable twelvemonth for Nasdaq, galore investors and funds person sought Apple's comparative safety, arsenic the banal is down "only" astir 16% YTD. Apple presently stands astatine 300 retired of the 500 stocks connected the S&P 500 scale successful presumption of year-to-date performance. This is Apple's worst successful caller representation that we recall, but it is undeniable that the banal has held up remarkably good successful examination to its mega-cap peers that person mislaid betwixt 30% and 75% this year.

But Apple has seen its stock of weaknesses and atrocious news, the astir caller 1 being the expected shortfall connected iPhone accumulation owed to the protestation successful China related to further COVID lockdowns. Not surprisingly, the banal is down astir 2% pre-market connected this study and is already creating ripple effects connected Apple's suppliers arsenic well. This nonfiction is intended to admit the undeniable value of China, but besides to pass investors not to overreact to this quality by dissecting the worst-case interaction to the company's quarterly and yearly net per share.

Undeniable China Impact

Despite caller headlines astir Apple's manufacturing/sourcing successful India and Arizona, China inactive accounts for astir 98% of iPhones manufactured. China's interaction to the bottommost enactment is further underscored by the illustration below: contempt accounting for 98% of iPhones manufactured, China's components outgo Apple a negligible percentage. Hence, it is nary astonishment that erstwhile China sneezes, Apple shudders.

Apple Cost by Country (www.phonearena.com)

What's the Bottom Line?

With information compiled from assorted sources, we arrived astatine the array below. Please note, we are underestimating the outgo a small to spot the worst-case interaction connected Apple with the caller shortfall reported. iPhone Pro 12 evidently outgo the least astatine astir $400, with iPhone 13 Pro costing $460 and iPhone 14 pro costing the astir astatine $500 arsenic reported here.

Apple Pro (Author)

• Let's presume the full 6 Million shortage results successful Apple selling 6 Million units with the highest profit/margin.
• Using the numbers above, that would mean a bottom-line interaction of $4.92 Billion ($820 times 6 Million units).
• Apple has astir 16 Billion shares outstanding.
• Hence, that works to an EPS interaction of 30.75 cents. That is, $4.92 Billion divided by 16 Billion.
• The projected Q1 EPS presently stands astatine $2.04 with the afloat twelvemonth projected to beryllium astatine $6.25 per share. Let's presume the short-term worst-case script that the full 6M shortfall hits the existent Q1 quarter. That would spot the Q1 EPS astatine $1.73 and afloat twelvemonth EPS astatine $5.94.
• We admit that immoderate proviso contented is improbable to beryllium constricted to conscionable iPhones. Since iPhones still relationship for astir 50% of the gross but adhd much than that to the nett margin, let's discount the Q1 and afloat twelvemonth EPS by different 25%. That would spot the Q1 EPS astatine $1.30 and afloat year's astatine $4.45.
• Using the afloat twelvemonth EPS arrived supra ($4.45) nether these highly antagonistic circumstances, astatine the existent pre-market terms of $145 per share, Apple volition inactive beryllium trading astatine a guardant aggregate of astir 30. Let's not hide that the existent marketplace sell-off has led to an imbalance wherever a institution similar The Clorox Company (CLX) sells astatine a guardant aggregate of 36.
• While a aggregate of 30 is simply a spot excessively affluent for our taste, fixed the 9%/yr projected maturation complaint for the adjacent 5 years, it does not look excessively outlandish for what remains the World's astir invaluable marque that is simply a currency instrumentality twelvemonth aft year.
• To reiterate, the numbers utilized supra are utmost projections assuming proviso concatenation issues persist passim the existent Fiscal Year and interaction the highest nett borderline units exclusively.
• Finally, the proviso concatenation issues are thing new. Apple's accumulation issues person already been speculated and reported arsenic covered here by Seeking Alpha. To punctuation well-known Apple expert Dan Ives from the nonfiction above:

"The zero Covid China shutdowns successful Foxconn person been a large gut punch to Apple this 4th and we judge person taken astir 5% of iPhone 14 units retired of the proviso concatenation and frankincense putting Cupertino successful a 'major shortage' heading into the adjacent month," expert Dan Ives wrote successful a enactment to clients."

Hence, it is not astonishing that Apple's estimates person been continuously revised down arsenic shown below.

AAPL Estimates (Yahoo Finance)

Conclusion

Additionally, Apple reportedly had beardown Black Friday demand, and it is good known that each the existent issues are conscionable proviso related and not demand-related. For a premium product, this whitethorn extremity up being bully quality successful the mean to longer run, arsenic the pent-up request volition nonstop buyers into a frenzy when (it is not a question of "if") the proviso concatenation improves. Apple remains a buy-on-weakness stock, and we look guardant to adding much connected immoderate unreasonable pullback successful price.

Setting speech investments for a minute, it is casual to empathize with the Chinese protesters here. Years of being oppressively locked down, sometimes to death, is bound to nonstop adjacent the astir diligent citizens to their limits and beyond. As overmuch arsenic it hurts Apple, different companies, and their investors, anyone who is speechmaking this nonfiction from an concern position should beryllium thankful that we are dealing with first-world problems. Count your blessings, enactment the people and don't overreact successful either direction. Good luck.

Dividends (DGI and DRIP) and Growth astatine tenable terms (GARP) for Long-term. Serious money.Fun trading for short-term. Play money.Ideas and thoughts presented successful the articles are not nonrecreational recommendations.