Apple’s stock extends losing streak after iPhone assembler misses profit expectations

Shares of Apple Inc. fell Tuesday, extending their pullback from a record close, after a key iPhone assembler in Asia reported a larger-than-expected drop in third-quarter profit.

Despite the stock reaction, at least one analyst, Amit Daryanani at RBC Capital, who tracks Apple and its supplier, Taiwan-based Foxconn Technology Group 2354, -3.59% sees mostly tailwinds to help Apple moving forward.

Foxconn, also known has Hon Hai Precision Industry Co. Ltd. 2317, -0.93% posted a 39% year-over-year drop in profit to the equivalent of $695.5 million, well below expectations of roughly $1.2 billion. Foxconn’s troubles came as Apple, its largest customer, faced iPhone X production challenges. Foxconn assembles iPhones for Apple in China.

Foxconn’s stock tumbled 3.6% in overnight trade. Apple’s stock AAPL, -1.51%  slumped 1.5% to suffer a fourth-straight loss, since it closed at a record $176.24 on Nov. 8 to become the first public company to clear the $900 billion market-capitalization hurdle. The stock has shed 2.8% during its losing streak, but was still up 7.2% over the past three months.

In comparison, the technology-heavy Nasdaq-100 Index NDX, -0.36%  has tacked on 6.5% the past three months and the Dow Jones Industrial Average DJIA, -0.13%  has gained 6.4%.

The RBC analyst did note some concerns over iPhone production delays. But Daryanani called attention to signs of a sharp year-over-year increase in off-balance-sheet manufacturing and purchase commitments, “potentially indicating strong ramp for iPhone X.”

After analyzing Apple’s 10-K annual report filing with the Securities and Exchange Commission, Daryanani said the 8% decline in warranty accruals was “logical,” given the iPhone X delay; the 31% rise in vendor non-trade receivables reflected component purchases by Apple for its electronics manufacturing partners; and the slight decline in operating margins in the U.S. resulted from carrier discounts on new iPhones.

Don’t miss: Demand for Apple’s iPhone X leaves fans frustrated, as delivery gets pushed out 5 weeks.

Daryanani affirmed his outperform rating, and $190 stock price target, which was 11% above current levels. He said there were “multiple tailwinds” to support earnings growth, including higher average selling prices (ASPs) for iPhones, improved gross margins from services and a better sales mix and the potential for tax reform.

Mizuho’s Abhey Lamba said, however, that ASPs may end up disappointing in the short term, like they did during the latest quarter, as an extension in the supply-versus-demand imbalance well into the following quarter could reduce demand for the higher-priced iPhone X. Lamba kept his rating at neutral, and his stock price target at $160, which was 6.6% below current levels.

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