Apple bear sees tactical opportunity to short

Pierre Ferragu looked at Apple at $200 and issued a “Sell.”

This e-mail from New Street Research landed on my desktop Friday:

Dear all,

As promised in February, we have analyses in details how the 2019 air-pocket is materializing and drew conclusions for the stock. We see a strong tactical opportunity to short, as the stock recovered to top-of-the-range multiples, while expectations for 3FQ19 and FY2020 appear already too high. We know the bull case on the stock is about services, but further disappointment in iPhone revenues would be unlikely to leave the stock unhurt.

For a detailed review of our (detailed!) analyses, please see the full not below, or reach out to the team. We will hold a conference call on Monday, April 15, at 10:30 ET / 15:30 GMT to review our work. Please click HERE to register for the conference call.

Link to the full note: Apple at $200? 3FQ and 2020 iPhone expectations are too high. Downgrade to Sell, TP $170.

Let us know any comments or questions.

Pierre.

Downgrades to Sell with a price target of $170.

[WARNING: All New Street Research links require a $40,000 year subscription.]

My take: Downgrade? Last we heard from Ferragu (Jan. 3) he was at $140. E-mail sent.

See also:

17 Comments

  1. Keith Hope said:

    3FQ2019 and then _all_ of FY 2020?

    What about the fiscal 4th quarter, which would be in-between those two time periods? You know, the quarter when Apple announces (and often starts shipping) the next iPhone…

    Perhaps the trading tactic being suggested is to short AAPL now/soon, exit after a drop and then re-short when/after the new iPhones are launched.

    0
    April 12, 2019
    • Keith Hope said:

      Cribbed from elsewhere;
      “The air pocket we anticipated for 2019 is now real, and numbers suggest the iPhone first-hand installed base is now ex-growth,” said Ferragu.

      He argued that while analysts have brought down their revenue expectations for Apple this year, the consensus view still looks too optimistic about a recovery in the fiscal third quarter, which ends in June. That’s based on his understanding of prior iPhone cycles.

      “In the [fiscal-year 2016] air pocket following the iPhone 6S+ launch, iPhone shipments started recovering against typical seasonality only in [fiscal fourth-quarter 2016], but consensus now expects iPhone shipments to recover in [ fiscal third-quarter 2019], over 4 points above typical seasonality, and further recovery in [fiscal fourth-quarter 2019],” Ferragu wrote. “We see a risk on [fiscal third-quarter 2019] shipments, and expect a recovery only in [fiscal fourth-quarter 2019] as observed in [fiscal-year 2016].

      There’s been optimism on Wall Street lately about Apple’s services business, as the company starts to provide a bit more disclosure about this faster-growing area of the business and prepares to launch a suite of new subscription services later in the year. Ferragu is less upbeat than some other analysts (http://www.marketwatch.com/story/apple- stock-bounces-back-toward-1-trillion-market-cap-2019-04-09).

      “Positive sentiment on services and potentially good numbers on that front could save the day, but don’t create a material upside risk on today’s valuation,” he wrote.

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      April 12, 2019
  2. Aaron Belich said:

    He got his “cred” being “lucky” last year one could argue. Or, on the other hand, hate the game, not the players.

    Out of curiosity, how many other Analysts charge that kind of money to access their reports?

    1
    April 12, 2019
  3. David Emery said:

    Hammer & Nail… Any Apple rise is an opportunity to short.

    2
    April 12, 2019
  4. Fred Stein said:

    $40,000 is a pretty expensive for a broken watch.

    1
    April 12, 2019
  5. Kathy Corby said:

    Some interesting info on the NASDAQ site about recent changes in AAPL short interest. (Google it– when I tried to send the link it tried to link to my own NASDAQ watchlist…) In a nutshell, on 2/28, AAPL short interest was higher than at any other time this past year, including during the October to December swoon. (96.8 shares, 4.38 days to cover.) It has since decreased (1.93 days to cover) but remains higher than at any other month besides March. No statistics are available after 3/31 as yet. But the point is: short interest may reflect negative sentiment, but it also can add rocket fuel to a rally, as shorts surrender and race to cover. Let’s be grateful to the shorts– they have our best interests in mind. That said, it is unlikely we will see short covering prior to earnings, and may see a swoon in price as AAPL likely must curtail its buybacks, but if earnings are better than expected, watch out above!

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    April 12, 2019
    • Robert Paul Leitao said:

      Kathy:

      I enjoyed reading your post. Why do you think Apple is likely to curtail buybacks? The company is not yet in a net cash neutral position.

      0
      April 13, 2019
  6. Kathy Corby said:

    And to S Lawton’s point, I wonder if Apple didn’t put a price on its Apple TV+ service just because it was waiting to see how the competition priced its offering? Now there is pressure to come in at or below the Disney price tag, which is surprisingly low. Sure would be nice to see the two companies cooperate. Laurene, wanna talk to the Disney board?

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    April 12, 2019
    • Robert Paul Leitao said:

      Kathy:

      I agree. The price for the Disney streaming service is surprisingly low. One influence on pricing is the fact Disney owns lock, stock and barrel its branded content. Uptake will be absolutely huge. If my kids were still kids, I’d be signing up for the service without a second thought.

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      April 13, 2019
      • Aaron Belich said:

        Seems like a perfect candidate for Apple to slap it’s “tax” (/s) on Disney+ allowing you to subscribe to it via iTunes+ApplePay for $9.67. Perhaps TV+ will be bundled with various third parties, AppleTV+Disney, $10, or +HBO, $15-20, etc…

        Or Apple will price like a boss, given they always do.

        0
        April 13, 2019
      • Peter Kropf said:

        Pricing Apple’s Content in Apple TV+?

        Others have guessed it would be $Zero, a loss leader to enter Apple’s ‘service platform’ allowing:

        – Purchase of single channels like HBO, Starz, ESPN, whatever. Apple will take its cut of subscription revenues.
        – Purchase of channel bundles including ‘Roll your Own’ channels. Some % discount applied for 3, 4, 5,… bundles.
        – Free access to all Apple owned content.

        Why would customers buy into a TV service platform like this? Why not? Customers would have a convenient and simple way to Watch Exactly What Pne Wants for Exactly as Long as One would Be Willing to PAY for It?

        Sort of a TV Guide with Millions of Choices in Thousands of Languages, right?

        0
        April 13, 2019
  7. Turley Muller said:

    Outstanding idea when the company is buying back its stock.

    0
    April 12, 2019

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