Goldman Sachs downgrades Apple on a slower COVID-19 recovery

Analyst Rod Hall just issued a Sell rating on the stock and cut his 12-month price target $17 to (Street-low) $233.

From a note to clients that landed on my desktop Friday:

The negative impact of COVID-19 driven global social distancing on the broader economy and several of our companies’ end markets has been severe. However, we believe the debate over shorter term numbers for our stocks is evolving toward how company earnings will fare in 2021 as the world emerges from the initial impacts of the pandemic. We conclude that a number of our companies will be slower to recover with weakness persisting into 2021 even as our economists forecast a return to GDP growth in that year. Specifically, we expect consumer electronics demand to be slow to return and ASP weakness to persist well into 2021 similar to what we have observed in prior downturns.

Downgrading AAPL, LITE, NTNX, SONO and QCOM. We are downgrading AAPL, NTNX, SONO and QCOM to Sell (link to separate AAPL report) and LITE to Neutral. For AAPL, SONO and QCOM our 2021 forecasts are pacing well below consensus for various consumer demand related reasons with the main one being slower ASP and unit recovery than is generally expected. We have downgraded NTNX from Buy to Sell because we do not believe that company’s growth plans are sustainable in this environment and our new forecasts fall well below consensus as a result.

From MarketWatch, which snagged the separate AAPL note:

Goldman Sachs downgraded Apple to sell on Friday and cut its price target to $233 from $250, as it reduced its earnings estimates for a third time since Feb. 17. Analysts led by Rod Hall said they are modeling a far deeper reduction in unit demand through mid 2020 followed by a shallower recovery heading into 2021.

“We also assume some lingering ASP (average selling price) weakness as consumers look to economize similar to what we have seen in prior downturns,” they wrote in a note to clients. “In addition to this we believe that Services growth slows substantially in 2021 and that Services as a percentage of revenue actually stagnates in that year.” Goldman is expecting a 36% decline in iPhone unit demand in the second quarter and a 24% decline in the first half of calendar 2020.

Analysts are expecting the company’s other products to experience a similar trajectory. “There are multiple examples of ASPs dropping in the midst of a recession and then remaining weak well beyond the point when units recover,” said the note. Price weakness could affect 5G design choices too, and limited global travel may cause the delay of the launch of this year’s updated iPhone, it said.

Downgrades rating to Sell from Neutral, lowers price target to $233 from $250.

My take: Hall is happiest when he’s underwater on Apple

See also:

 

24 Comments

  1. Jonny Tilney said:
    Must be conversing with Dan Niles. He must also be missing the post C surge of activity taking place now in China.

    4
    April 17, 2020
  2. David Emery said:
    I have a NSFW nickname for Mr Hall.

    Other than calling him funny names, I see no value in paying attention to him.

    3
    April 17, 2020
  3. Kenny Kruger said:
    My Take?
    Manipulation.
    Always a Friday,
    Remember September 13?
    “Goldman Sachs just dramatically cut its outlook for Apple, predicts 26% downside.”

    1
    April 17, 2020
  4. Posted by one of my favorite Apple watchers in another venue:

    “Sounds like The Giant Squid was caught flat footed and on the wrong side of some trades when the Remdisivir preliminary trial results were announced.”

    6
    April 17, 2020
    • Gregg Thurman said:
      Except that the “report” wasn’t about trial results. However positive it was the article cited anecdotal data, not trial results.

      2
      April 17, 2020
  5. Mordechai Beizer said:
    I truly do not understand Goldman Sachs. If anything, Apple’s place in the consumer universe has improved. The iPhone is now a lifeline, not a luxury, and with the new SE it is available at an amazing price. Shouldn’t GS be thinking of how much more market share Apple will gather from other players? I realize that consumer spending will be stressed this year but GS’ take on it is absurd.

    To me the takeaway is that Apple is strengthening its position across the market and is showing that it has the resources and ability to launch great products even during these disruptive times.

    9
    April 17, 2020
    • Gregg Thurman said:
      Shouldn’t GS be thinking of how much more market share Apple will gather from other players?

      For years we have criticized the media, WS, and market research firms for their incessant reporting of unit market share, while seemingly ignoring profit market share.

      The iPhone SE may increase unit market share, but at at what cost? At $399 and $449 the more successful the SE the lower iPhone ASP and quite likely profits as well.

      1
      April 17, 2020
  6. Fred Stein said:
    Rod needs to read Antifragile. Just the wikipedia version is enough.

    Apple is anitfragile because of customer/employee loyalty, and now investor loyalty. Plus they can out-invest in organic development or their acquisitions to expand their technology lead. And of course buybacks.

    Almost no analyst touts Apple’s technology lead. Their stack is deep and wide and high. Deep as in the chips and supply chain. Wide as in all the software and SDK’s and the 23 million developers registered. High as in all Apps, games, and streaming content.

    Regardless of how the pandemic impacts people and the economy, it can’t hurt Apple’s technology lead.

    9
    April 17, 2020
    • Robert Paul Leitao said:
      Thank you, Fred! In my view Mr. Hall has unwittingly become one of the most reliable and consistent contrary indicators for Apple.

      9
      April 17, 2020
  7. Thomas Larkin said:
    So, do we have to thank Mr. Hall if this results in another opportunity to buy the dip?

    1
    April 17, 2020
  8. Kirk DeBernardi said:
    SELL AAPL?

    Really?

    Sounds like words to be eaten…

    …and probably within 12 months.

    3
    April 17, 2020
    • Aaron Belich said:
      Given Hall’s track record, give it a couple days, weeks at most. He’s a tool for others to use in their efforts to manipulate the system. Nothing more, nothing less.

      2
      April 17, 2020
  9. Jerry Doyle said:
    The new premium budget iPhone SE starting at $399 is going to increase Apple’s install base. The new SE released today keeps budget conscience iPhone users in the ecosystem while embracing new consumers switching from other mediocre devices to the SE for a higher level smartphone experience.

    Analysts may be underestimating what the new SE will do for Apple in the short term as well as in the long term through increased sales and increased market share.

    iPhones are consumer staple devices. After several years of persuasion I succeeded a couple of weeks pass to get a friend to switch from Android to iOS. I explain to him last evening why I view the iPhone as a consumer staple product. My friend’s response was consistent with my vision when he responded, “… my phone is indispensable to me.” Isn’t that the definition of what a consumer staple is all about?

    Rod Hall’s sell rating on Apple and his price target of $233 is farcical and lands him in the legendary ranks with Toni Sacconaghi as being a WS analyst motley jester.

    5
    April 17, 2020
    • Aaron Belich said:
      As well as the ex-analyst from Rosenblatt and Ferragu from New Street Research, fools the lot of them.

      2
      April 17, 2020
  10. Jacob Feenstra said:
    No need to take Rod Hall all that seriously. If you would have followed his advice on stocks in his portfolio you would have made 4.2%/yr. Compare that to, say, Brian White whose advice would have made you around 22%/yr.

    I don’t so much blame Rod Hall for not knowing how to analyze stocks, but I do blame Goldman Sachs for holding on to him. It reflects poorly on them.

    11
    April 17, 2020
    • David Emery said:
      At some point, Goldman’s retention of Hall moves beyond just ‘bad judgement’ into the realm of ‘failure’. So Goldman, which is it? Are you really that incompetent to retain an analyst with such an abysmally poor record? Or are you crooked and using this to manipulate the markets (as others here have alleged.)

      6
      April 17, 2020
      • Fred Stein said:
        Harsh but fair questions. Rod and GS must understand buybacks and the cumulative impact over 12 months.

        1
        April 17, 2020
  11. Ralph McDarmont said:
    Rod Hall is a hack assassin. He swings a meat cleaver to suck up a headline. Today’s stunt is a perfect example. He has no basis for his AAPL call but Apple hate generates a lot of clicks. When he is proven wrong he will slink into silence. Rinse and repeat.

    5
    April 17, 2020
    • Thomas Larkin said:
      I doubt it’s clicks he’s after, and I doubt he (or Goldman Sachs?) cares whether he’s “right.”

      1
      April 17, 2020
  12. Dan Scropos said:
    I’m shocked, even though I shouldn’t be, that the opinion of an analyst with such a poor track record holds this much weight. Some folks are sellers today and Apple are buyers. I’m okay with that.

    2
    April 17, 2020
    • Aaron Belich said:
      It’s more of the the frustration that this will result in a talking head circuit that feeds the trolls and shorts who subsequently expound on this report with their contrived analysis devoid of the facts from Apple themselves, at least the big picture ones, perhaps cherry picking the data that best meets their ‘thesis’.

      I wish I knew how to best trade these goofy reports. Buy and hold is fun and boring. Though, I feel there’s something to exploit here, just haven’t figured it out as well as Dr. Cathy and Greg have (‘F’).

      0
      April 17, 2020
  13. Fred Stein said:
    Wait. This part is crazy: “…Services growth slows substantially in 2021 and that Services as a percentage of revenue actually stagnates in that year.”

    I can understand the COVID-19 might seriously impact product sales for a while – that’s stretching it. But then, services revenue would definitely grow as a percentage.

    2
    April 17, 2020

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