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Analyst sees supply chain issue leading to lower than expected iPhone holiday sales

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Analyst sees supply chain issue leading to lower than expected iPhone holiday sales
Apple's fiscal fourth-quarter concluded at the end of September putting the company nearly one-third through its fiscal first quarter of 2022. Apple's fiscal first quarter, which encompasses October through the end of December, is known as the holiday quarter since it covers the holiday shopping season. JP Morgan lead analyst Samik Chatterjee wrote a note to clients about Apple which was viewed by AppleInsider.

Analyst sees iPhone revenue to be negatively impacted by camera module shortages


According to Chatterjee,  he expects strong iPhone 12 demand to result in Apple handily beating estimates for its fiscal fourth quarter of 2021. But the analyst believes that Apple will guide investors' expectations for the fiscal first quarter down because of supply constraints related to the iPhone 13 camera module. In his report to JP Morgan clients, Chatterjee wrote, "As we had warned in early October, the primary bottleneck relative to iPhone 13 production worth monitoring was related to the camera module, and checks indicate that while COVID-19 related lockdown in Vietnam has passed the worst point, production continues to face yield challenges in the near term."

The analyst has lowered his fiscal first-quarter earnings estimate for the tech giant and while investors should be wary of this, the way Wall Street works is that once the report is announced and the earnings shortfall is disseminated, all of the sellers will have already exited leading to a rally in the shares. In fact, Chatterjee is already talking up future reports from Apple after the holiday quarter's results are released.

Expecting the supply issues to be short-lived, the JP Morgan analyst says that he sees a "modest push-out into the future quarters, setting up catalysts in the form of better than typical seasonality starting in" 2022's second quarter. Investors haven't been giddy and throwing their cash at Apple's shares following the release of the iPhone 13 series. Since the new phones were released on September 24th, Apple's shares have risen just 1.3%.

Because of this low-key response, Chatterjee sees upside ahead for Apple ahead as demand for the 2021 iPhone models beats out investors' expectations. "We continue to see strong demand for iPhone 13 and 5G iPhone SE relative to low investor expectations (italics added) to act as a catalyst, the timing of realization of which, although delayed on account of supply headwinds, is unchanged in magnitude."

The analyst's latest data calls for Apple to sell through 58 million handsets during the fiscal fourth quarter, topping original forecasts by 3 million units. Again, most of this quarter took place before the iPhone 13 release and the iPhone 12 was the main driver during that period. For the holiday quarter, the analyst now expects to see 78 million iPhone units rung up. But that is down from the original estimate of 82 million because of supply chain shortages.

JP Morgan has a $180 12 month target on Apple's shares


As a result, JP Morgan now expects Apple to announce that it garnered $46 billion in iPhone revenue during the fiscal fourth quarter and $63 billion during the fiscal first quarter of 2022. The latter is down from original forecasts of $69 billion in gross.

The analyst still has Apple rated "Overweight" (which means that it should occupy a larger percentage of your portfolio than other stocks) with a 12-month price target of $180. Based on JP Morgan's 2022 earnings estimate for Apple of $6 per share, he expects Apple to be trading at a 30 multiple during the coming year. Apple closed today at $148.76 for a gain of $5.82 meaning that it currently is trading at 29.13 times earnings.

Other tech stocks are trading above Apple's P/E ratio with Google at a multiple of 31.18, and Microsoft is currently trading at 38.27 times earnings. In case you're curious, Google shares reacted quietly to today's Pixel 6 event as parent company Alphabet saw its stock rise only .60% ($17.23) to $2,876.44.

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