Is Wall Street finally souring on Apple?
Apple (AAPL) has been trying to diversify into services, but for the time being it is extremely reliant on hardware sales and in particular iPhone sales. Rosenblatt Securities analyst Jun Zhang has downgraded the stock to a Sell rating after data that suggests the iPhone XS was a flop and a prediction that the next iPhone model will once again be disappointing.
Zhang’s Sell rating on the stock coincides with a $150 price target, which is quite bearish as Apple is currently trading ~$204 per share. (To watch Zhang’s track record, click here)
Apple has rebounded from a pullback in the last few weeks as positive signs in the US/China trade war propelled the stock back up above $200. Although Zhang has a Sell rating on the stock, he makes it clear that the company is not a strong short play, as it has a ton of cash in reserves and plans to grow its already large stock buy-back schedule.
Weakness in the smartphone market in general and iPhone sales, in particular, are worrying Zhang. He thinks that “the iPhone XS was one of the worst selling iPhone models in the history of Apple.” Contributing to this was the introduction of the XR line, which has made the premium lines look pricey in comparison. iPhone XR sales are higher than XS and XS Max sales put together, which is a staggering statistic for a new line and reflects the fact that the XR model has cannibalized sales from the more expensive iPhones.
Zhang believes that Apple slowed XR production because Q2 sales were weak. Further contributing to his Sell rating is the expectation that Apple will not significantly overhaul the new iPhone lineup scheduled for release in the fall. The major changes will be coming in the fall of 2020 when Apple is expected to release a 5G iPhone. This year’s iPhone is expected to add a single camera to both the XR and the XS/XS Max lines, meaning the XR will have a dual camera and the XS/XS Max will have a triple camera.
In addition to weak iPhone sales, Zhang predicts that “iPad sales growth will slow in the second half of 2019.” Products such as the HomePod, AirPod, and Apple Watch are not significant enough to drive revenue growth going forward. Zhang also believes that service growth will slow, even with the launch of Apple TV+ coming soon.
Although Rosenblatt’s Jun Zhang is very bearish on the stock, Wall Street has a Moderate Buy consensus for AAPL as shown on TipRanks. 19 analysts have the stock as a Buy, 14 are Holding, and 3 are Selling. The average price target for AAPL is $213.45, which is a 4.5% upside on current levels. (Click here to see AAPL’s price targets on TipRanks)