by winston » Wed Apr 22, 2020 1:08 pm
not vested
Apple Inc. (AAPL)
Even tech giant Apple won’t be immune to the impacts of COVID-19, and the company could be facing a much longer recovery timeline amid the worldwide shutdowns.
Part of Goldman Sachs' concern is related to poor unit demand as well as the length of time in which this figure will return to growth.
“We are now modeling a deeper reduction in unit demand through mid-2020 and then a shallower recovery into early 2021,” analyst Rod Hall explained.
However, while much of the focus is expected to center around this issue at the beginning, Hall believes an additional headwind should be sounding the alarm bells.
The analyst argues average selling price (ASP) weakness could weigh on earnings through 2021. “Handset ASPs downticked to a maximum year-over-year decline of 14% in the [global financial crisis] but, importantly, did not show positive growth until Q3 of 2010 even though unit growth had returned in late 2009,” he stated.
As a result, Apple’s new phones won’t necessarily support the faster type of 5G, millimeter-wave spectrum, as the added expense might not be warranted when there’s less demand for higher quality phones. This could mean the technology might not be included in the devices until 2021.
It also doesn’t help that its services business could be hampered by COVID-19. This appears to be the straw that broke the camel’s back for Hall, and thus he downgraded his call to Sell. Based on his $233 price target, the downside potential lands at 16%.
Looking at the consensus breakdown, other analysts don’t necessarily agree with Hall. 27 Buys, 6 Holds and 3 Sells issued in the last three months give Apple a Moderate Buy consensus rating.
With a $308.25 average price target, shares could surge nearly 15% in the next twelve months.
Source: GS
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