"We Are Disappointed" – Goldman Removes Apple From "Conviction Buy" List, Cuts Price Target From $155 To $136
By Tyler Durden
The tide has finally turned on what until recently was every sellside analyst’s favorite stock.
With AAPL back in bear market territory and the stock back at levels last seen when the S&P was at 1820, it only makes sense for Goldman to take profit on its AAPL short position, which in this case manifested itself with a “Conviction Buy” call on the stock (for Goldman to short the stock, clients have to buy), and moments ago it closed out its “conviction buy” saying “we are disappointed by Apple’s quarter and guidance, as it reflects a much weaker iPhone 6s product cycle than we had anticipated, with most of the negative surprise vs. our expectations coming from China”, and cutting its 12 month price target on the stock from $155 to $136.
This is what else Goldman said.
Tough quarter; removing from Conviction List, maintain Buy rating
Current view
We are disappointed by Apple’s quarter and guidance, as it reflects a much weaker iPhone 6s product cycle than we had anticipated, with most of the negative surprise vs. our expectations coming from China. As such, we expect the shares to be weak in the near term, until the market gets comfortable around improving trends with the iPhone 7 product cycle. That said, we do not view the quarter as thesis-changing longer term, and maintain our Buy rating. In particular, we are encouraged by (1) Apple’s new disclosure that its iPhone installed base is up 80% vs. 2 years ago, coupled with evidence in our US survey of significant pent-up demand for the iPhone 7, and (2) the acceleration in reported services growth to 20% yoy, with gross services up 27% – evidence of increasing monetization of Apple’s platform. We now estimate 41mn iPhone units in F3Q, compared to prior GS/consensus at 47mn/44mn, with about a 2mn impact from the channel inventory reduction. We lower our FY16-18 sales estimates by 8%-9% on lower units/ASPs, and our EPS estimates by 11%- 14% to $8.40/$10.53/$11.42 on the additional impact of lower margins. We lower our 12-month price target to $136 from $155, based on 12.5X CY17 EPS (previously 15X on CY16E EPS), reflecting lower growth. Risks include product cycle execution, end demand, competition, and a slower pace of innovation.
iPhone: Disappointing iPhone 6s demand weighs on results
Apple’s iPhone segment fell short of expectations in the quarter, as revenue of $32.9bn (-18% yoy, -36% qoq) compared to GS at $35.3bn and consensus at $33.2bn. Similarly, 51.2mn units were below our forecasted 53.6mn although modestly above Street at 50.3mn. ASPs of $642 compared to GS and Street at $659 driven by FX headwinds as well as a mix towards both mid-tier and entry-level iPhones (i.e., the 6 and 5s, respectively) in the quarter. Looking ahead to June, while management does not provide explicit segment-level guidance, it expects “seasonal” sequential declines in iPhone sales. Looking at the trailing three-year average as a proxy for underlying seasonality, that -19% qoq decline would imply 41.2mn …read more
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