Analyst Rod Hall makes a small concession to the market. Plus: My updated before-and-after Q2 2020 earnings chart.
From last Friday’s note to clients, which landed on my desktop Monday:
Apple reported solid numbers but then pulled guidance for the June quarter.
We believe bulls had been hoping for a June guide above expectations driven by inventory restocking. However, management stated that inventory levels were within the normal range exiting March which reduces the chance that inventory rebuild acts as a tailwind in the June quarter.
In terms of capital return, Apple repurchased $18.6bn in the quarter, within its typical buyback range, and raised the dividend by 6.5%. The amount of new buyback authorization was just $50bn compared to $75bn last year but we don’t believe this signals any change to Apple’s buyback intentions looking forward.
As for the TV+ free trial, we now believe that our 45% take rate assumption is too optimistic and we reduce this to 25%. This negatively impacts our Services growth by ~3% but then should act as a slight tailwind to iPhone revenue relative to our prior model. Apple is executing well but we continue to believe consensus expectations are materially high in 2021 and our own EPS estimate for the year is 16% below consensus heading into these earnings; reiterate Sell with 17% downside to our revised target price.
Maintains Sell rating, raises price target to $243 from $236.
Cue the chart:
My take: Hall’s target must be intended for the buy-side. In other words, he’s telling Goldman Sachs’ investment clients to wait until the stock hits $243 before buying Apple again.