Apple Drops on Negative Goldman Outlook, Possible iPhone Delays

Apple falls as Goldman Sachs warns sales and earnings don't justify the stock’s current valuation, and on reports of possible iPhone 12 shipment delays.

Shares of Apple  (AAPL) - Get Report fell on Tuesday following a report from analysts at Goldman Sachs that the technology giant still doesn’t appear to have enough sales and earnings momentum to justify the stock’s current valuation, especially relative to other tech giants like Amazon  (AMZN) - Get Report and Microsoft  (MSFT) - Get Report.

In a note to clients, Goldman analyst Rod Hall wrote that the company’s growth rates “aren’t consistent with the narrative that has driven the stock to its highest premium vs. the S&P 500 since 2011,” and that other tech giants like Amazon and Microsoft “are delivering the numbers and yet are valued at about the same multiple as Apple.”

“The iPhone is a very tough act to follow,” and Apple’s services and wearables businesses are “not likely to be large enough to return the company to growth,” Hall said, adding that while the company and his team “are not permanent bears” on the stock, “we simply would like to see a consistent string of beat and raise quarters from Apple that match the growth narrative.”

Goldman downgraded Apple to sell in April and currently has a one-year price target of $80 on the stock, something Hall noted “would be an understatement to say that this call hasn’t worked.” Apple stock has gained more than 70% since April on the back of stronger-than-expected sales and earnings, and more recently a 4-for-1 stock split.

Indeed, Apple had its third worst week in the market since the sharp March 2020 correction, down 3%, as the Nasdaq 100 underwent a sharp (and rare) pullback off its all-time highs, Apple Maven Daniel Martins wrote on Friday, though noted the drop "could have been much worse."

Meantime, the company is still struggling with Covid-19-related manufacturing and supply-chain disruptions that now point to a mid-September rollout of its new range of 5G-enabled iPhones.

Nikkei Asia Review reported on Tuesday that mass production of the company’s newest lineup of iPhones is expected to begin ramping up in mid-September and into early October. Production was anticipated to begin at the end of August.

The company is expected to produce around 75 million iPhones this year, short of the 80 million phones for which it ordered components, sources told the newspaper. The remainder of Apple's planned production could be pushed into early 2021, Nikkei said.

Despite the potential coronavirus-linked delays, Apple confirmed on Tuesday that it will hold its annual Apple Event on Sept. 15, where it will unveil its new 5G-compliant iPhones as well as other products and services, including additional details of its iOS 14 operating system.

Shares of Apple were down 3.89% at $116.29 in trading on Tuesday.