Apple: Finally, A Bearish Perspective
Remember “sell-side love”? I have talked at length about how analysts have been forced to make a decision ahead of Apple’s earnings day: (1) bump up their price targets to chase Apple’s skyrocketing share price and double down on their bullishness, or (2) throw in the towel and downgrade the stock due to high valuations.
So far, the great majority of experts have chosen to stick to their guns. Even though Apple shares have been up 82% over the past 12 months, Wall Street analysts remain optimistic:
- “In China alone, between 60 million to 70 million iPhones are in the window of an upgrade opportunity over the next year with Apple going aggressively at all price points (SE, iPhone 12) to cement its installed base despite competitive pressures from domestic players” – Dan Ives, Wedbush, July 13.
- “June quarter product revenues will likely top consensus estimates and the company's services growth is likely to accelerate from March. Recent survey data ahead of the company's upcoming launch of 5G iPhones shows an increasing likelihood of smartphone upgrades in the next six months” – Katy Huberty, Morgan Stanley, July 22
Enter: the devil’s advocate
But then, there is Goldman Sachs’ analyst Rod Hall. According to TipRanks, he is the only Wall Street researcher with a “sell” rating on Apple. And he has just come out with a reiteration of his views on the stock, calling the current share price unsustainable.
Although I am an Apple bull, I like to see what bears have to say about the stock – beyond the obviously high valuations. Watching Wall Street publish pie-in-the-sky reports day after day does very little to help make a balanced and well-informed decision on whether or not to invest in Apple.
Here are some of Rod Hall’s key points, along with my reactions to them:
- Next year’s earnings will fall below current expectations due to slowing unit sales, average prices, and unit growth. I think any prediction about next year’s sales, whether bullish or bearish, is highly speculative. For what it’s worth, I don’t believe that demand for wearables will fall for a long time, and believe that Apple’s 5G model could make a splash in 2021.
- Apple will not provide guidance for the September quarter due to the pandemic uncertainties and the potentially delayed 5G iPhone release. I agree that it should not, particularly for the first reason – Apple never considers future smartphone launches in its guidance. But I do not believe that investors expect anything different from the company this time.
- A one-month iPhone delay would reduce holiday revenue sales by about 7% and EPS by about 6%. Here, I share the same concerns. Last time that a big phone launch was delayed, in 2017, iPhone X sales still did well in the holiday quarter and following year. But unquestionably, there is a risk that this time could be different, especially amid an unfavorable economic environment.
What do you think about Apple?
Now, I turn the floor to the readers. Do you side with the great majority of Wall Street analysts and the bullish market through earlier this month? Or do you see a more compelling case being presented by Goldman Sachs and the bears that have been coming out of their caves in the past 2-3 weeks?
Leave your comments below.