Goldman Sachs says now is the time to sell Apple, forecasts 20% drop from current level
- Goldman Sachs downgraded Apple shares to "sell" on Friday, citing the economic slump for a near-term decline in device sales.
- The bank lowered its price target for Apple shares to $233, implying a nearly 20% drop from Thursday's close.
- Weakened demand will push iPhone sales down 36% in the second quarter, the team of analysts wrote, and stifled buying power will hamper average selling prices through 2021.
- Despite the revenue slide, Goldman expects Apple's customers to merely defer buying instead of switching to other, less expensive options.
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Apple's reign as one of the most highly recommended tech stocks is under siege.
Goldman Sachs downgraded the tech giant on Friday, rating the shares "sell" after forecasting a deep downturn in consumer demand throughout 2020. The company's average selling prices will take a hit amid the economic slump and Apple's crucial Services segment will slow to a halt in 2021, the analysts added.
Goldman lowered its price target for Apple shares to $233, implying a nearly 20% decline from its Thursday closing level. The downward revision is Goldman's third for Apple stock since February 17.
Sales of Apple's flagship phone will slide 36% in the second quarter, Goldman projected, before recovering to a mere 2% decline by the fourth quarter. The key product faces an unprecedented threat from global supply chain disruption fueled by the coronavirus outbreak. Apple warned in mid-February that weakened demand in China and paused factory activity wiped out chances of the company reaching its second-quarter guidance.
The bank's analysts expect Apple's other devices to see a similar drop in sales through the year.
Past recessions suggest the average selling price of Apple's products will plunge in the near-term and remain weak through 2021, the team led by Rod Hall added. The lower-than-usual revenues could even lead Apple to exclude millimeter-wave 5G capability from its next iPhone as consumers look for cheaper devices.
Despite the dire outlook, Goldman doesn't think the hurdles will shake Apple's loyal base. The virus-induced trough will instead lead customers to keep devices longer and pick less expensive Apple options for necessary upgrades, the analysts said.
The tech giant may already be one step ahead of Goldman. Apple unveiled its latest iPhone SE on Wednesday, giving shoppers a $399 alternative to its more expensive handsets. The company's first 5G-capable iPhone lineup is set to be revealed in the fall, but some fear the coronavirus' hit to global production could delay the announcement.
While an iPhone delay isn't Goldman's base case, the bank's analysts see such an event driving a 19% decline in profitability through 2020.
Apple traded at $286.69 per share as of Thursday's close, down 2% year-to-date.
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