Why HSBC downgraded Apple

Europe’s largest bank says Apple’s hardware growth is “broadly over for now.”

From a note to clients snagged Tuesday by CNBC:

“Apple’s iconic hardware unit growth is broadly over for now. Revenues are only supported by higher selling prices and by the development of services. Flat unit growth has hit Apple’s share price and incidentally its key suppliers. What has made the success of Apple, a concentrated portfolio of highly desirable (and pricy) products is now facing the reality of market saturation.

HSBC also went into an in-depth analysis of whether Apple should trade at a higher earnings multiple in line with stocks that sell luxury goods. It concluded that Apple’s shares are not “particularly expensive” but don’t deserve a higher multiple associated with luxury brands.

And if its multiple won’t expand, there isn’t any other way to justify a higher stock price since earnings and revenue growth are likely to slow, the analysts said.

“As Apple moves from very high double-digit revenue growth to a more pedestrian mid single-digit (both top and bottom line), the slowdown in the second derivative of growth will weigh on the stock’s investment case,” the note said. “While we understand the company’s interest of not disclosing unit sales of hardware and focusing more on service gross margin, investor enthusiasm could be the victim of a lengthy transition phase as the focus shifts.”

Downgrades rating to Hold from Buy and lowers price target to $200 from $205.

My take: Apple gave up much of Monday’s gains in early trading Tuesday, but uncertainties about the tariff truce surely weighed more heavily on the stock than this downgrade. HSBC is a big bank—the 7th largest in the world—but it’s a minor player in Apple analysis. Waiting to see the note.


  1. John Blackburn said:

    Dropping that price target 2.5% is a bold move showing true courage.

    December 4, 2018
  2. Gregg Thurman said:

    And there it is front and center, a blatant refusal to consider Apple as a whole.

    Mild mid single digit growth in a saturated market? If this were any of Company I might buy that argument, but this is Apple, a $350 Billion a year firm. Five % revenue growth (guidance) equates to more than $17.000 Billion, a number that if achieved by a firm half Apple’s size would be 10% growth, or expressed another way, more than a great many S&P 500 firms total annual revenue.

    If the focus shift takes an extended time it will be due to the myopic analysis from firms like HSBC.

    December 4, 2018
    • Alan Birnbaum said:

      I am not a conspiracy theorist, but doesn’t this feel that the Hedge funds (I am looking at you George Soros) are playing the media/market like a fiddle?

      December 4, 2018
  3. Fred Stein said:

    HSBC’s comments are “broadly muddled”.

    Apple is well along the way in their ‘lengthy transition’, from dependance on hardware sales. While hardware sales are seasonal and cyclical and will likely be impacted by macro economic factors, the hardware installed base is growing at 20% annually. That feeds services growing at 20% annually.

    The comment on multiple expansion ignores the impact of buybacks. Maybe they’ve never heard of it?

    The comparison to luxury goods is naive.

    December 4, 2018
  4. Richard Weathered said:

    It staggers the imagination that the negative commentary about AAPL is blind to a holistic view of all aspects that make up the company, I can think of no better example than AAPL for the concept of “the sum is greater than the parts.”

    December 4, 2018
  5. Gianfranco Pedron said:

    “Revenues are only supported by higher selling prices and by the development of services.”

    Well, uhh … yeah! Where has HSBC been for the last couple of years. Apple’s ceasing to report unit sales figures seems to be slap to the head wakeup call these analysts needed.

    … ONLY supported by higher asps and services? I can’t believe the superficial crap that passes for analysis.

    Bloomberg and company gossip gets wide media exposure while while deep dives by DED and company are relegated to relatively obscure websites within the bowels of the web. While frustrating, I get some consolation comes from the fact that their relative obscurity can be an advantage for AAPL longs.

    December 4, 2018
  6. Aaron Belich said:

    And now pundits are crying foul that Apple is resorting to sales to push units sold.

    How do invest in the FUD machine, they are making money regardless the value of a given stock going up or down.

    December 4, 2018

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