Apple shares have taken a nearly 8% hit in the last five days amid weaker numbers reported last week by Taiwan Semiconductor Manufacturing Co. (NYSE:TSM), a big Apple supplier. UBS noted the supplier's miss has sparked fears that Apple will report disappointing iPhone sales in June, but its analysts say they are not convinced the miss "is only a reflection of iPhone end demand."
"Consequently, we think June units may end up closer to 40mn (million) than 35mn," according to the UBS report dated 24 April 2018.
And while there appear to be "a lack of upside catalysts" at Apple, the UBS analysts said "the downside also appears limited, with strong services growth likely and a significant stock repurchase to be announced."
Analysts deem Apple pricing strategy 'successful'
UBS acknowledged there "has been little good news regarding iPhone demand given continued supply chain concerns" and question marks in China. Nonetheless, the analysts maintain that Apple "is having success moving buyers up the iPhone price curve." They estimate that 24% of customers paid more than US$900 for their iPhones, up from only 5% a year ago.
"We think Apple's pricing strategy has worked better than most investors believe," the analysts said. "A moderate mix-down is evident, but Apple successfully moved most premium customers in the US$700-US$900 price range to price bands over US$1,000.
"Some believe Apple's pricing strategy failed, but we view it as successful at the high and low ends," the analysts stated.
The UBS analysts also say they expect a "fairly aggressive capital return policy" in the form of stock buybacks.
"We look for the yearly repurchase rate to about double from US$30bn to US$60bn with zero net cash achieved in five years," UBS said.
Price target maintained
UBS noted that Apple's stock is near its 200-day moving average, and said the current quarter "should test whether the iPhone demand is becoming less important to investors." The analysts said they're maintaining their price target of US$190, or 16 times their fiscal 2018 earnings estimate of US$11.70 a share, "in line with hardware-centric names."
In mid-morning trading Tuesday, Apple was down 0.8%, to US$163.93. It traded as high as US$178.82 a week ago.