Apple added to Evercore’s Tactical Outperform list amid low expectations

Evercore added Apple (NASDAQ:AAPL) to its Tactical Outperform list, noting that the company is well positioned to clear a lower bar.

The firm maintained its Outperform rating and $250 price target on the stock.

Analysts led by Amit Daryanani said they think Apple is well positioned to outperform against low expectations in the September-quarter and more importantly on the December-quarter guidance.

The analysts added that the sentiment on Apple has turned more bearish in recent weeks, and they think buy-side expectations are likely lower than current consensus estimates.

Against this background, they expect Apple to deliver in-line results against current estimates, which should help the stock to move up. Bearish investors remain focused on the Chinese smartphone market, but the analysts think the risk here is overstated and can be offset by growth in developing markets and a strong upgrade cycle in the U.S. where Evercore’s survey indicates strong upgrade demand, driven in part by AI.

The analysts noted that Huawei Technologies is the main threat in China and they reportedly continue to struggle with securing sufficient chip supply and are largely competing against the lower end of the iPhone lineup.

Last month, it was reported that Huawei and its chip making partner Semiconductor Manufacturing International (OTCQX:SIUIF) were struggling with production of the chips used in Huawei’s upcoming new flagship phone. The root cause of the issue was the continuing impact of the four-year-old U.S. ban on the supply of chip manufacturing tools to Huawei and SIUIF.

The analysts said government stimulus should help boost demand in the overall China smartphone market, which would be a positive for all. The staggered rollout of AI should also result in a stronger, for longer iPhone upgrade cycle as the release of new features and new geographies should steer strong word of mouth advertising, according to the analysts.

Beyond the iPhone, the analysts are also bullish on the outlook for Wearables and Services revenue growth. Wearables should see a solid acceleration in the December-quarter due to several new products including Watch, Watch Ultra, AirPods 4, and USB-C AirPods Max, the analysts added.

Daryanani and his team noted that gross margins will be a key swing factor as the company should see some benefit on the product side from higher iPhone mix in December-quarter, but this could be offset by relatively lower Services mix.

Apple (AAPL) has a Hold rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the Seeking Alpha authors’ average rating is also Hold, but the average Wall Street analysts’ rating is more positive with a Buy.

Evercore added Apple to its TAP (Tactical, Action, Positioning) List.