Paul Harris discusses Apple
Apple Inc. shares tumbled on Monday and could fall further as the company’s decision to close all of its retail stores outside China due to the coronavirus “marks an escalation in the impact of COVID-19 on both Apple and our coverage more broadly,” according to Credit Suisse.
The stock declined as much as 14 per cent in their biggest one-day intraday percentage drop since May 2010, though it last traded down 8.3 per cent. At current levels, the stock has lost more than a fifth of its value from a record hit just last month.
Despite the scale of the recent sell-off, “uncertainty remains too high for us to step in at these levels,” wrote Credit Suisse analyst Matthew Cabral, who reiterated a neutral rating and US$290 price target. He cited “both the possibility of closures extending beyond two weeks,” and the risk of a broader slowdown in consumer spending as factors behind his cautious near-term view.
Last month, Apple warned the outbreak would cause it to miss its sales targets this quarter.
Wall Street has been struggling to evaluate the impact the outbreak will have on Apple and its share price. According to data compiled by Bloomberg, consensus estimates for Apple’s second-quarter earnings have dropped by 13 per cent over the past month; revenue expectations are down 7.2 per cent over the same period.
At least three firms cut their price targets on Monday, with Goldman Sachs lowering its view to US$265 from US$300. The firm wrote that the current environment “warrants increased caution regarding global demand outside of China.” It added that it expects “incremental demand weakness in large global markets” through mid-May and noted this could be an optimistic view if the impact to demand globally proves to be as severe as in China.
CFRA lowered its target to US$320 from US$350, writing that the retail stores “are at risk of staying closed longer than stated,” though the impact should be “largely transitory.” Analyst Angelo Zino affirmed a buy rating on the shares.
RBC Capital Markets lowered its target to US$345 from US$358, though it recommended adding to positions. The “near-term choppiness presents opportunity for increasing exposure” to the iPhone maker as the long-term bull case remains intact. A 5G iPhone remains “a sizable opportunity for both higher unit sales and higher selling prices.”
Over the weekend, Loup Ventures estimated that the move to close stores could reduce revenue by as much as 2 per cent in the current quarter. Last week, Cowen warned that the stock could face additional downside risk of 15 per cent to 20 per cent, based on its valuation and a worst-case scenario for revenue. However, Wells Fargo upgraded its view on the stock, citing a “compelling risk/reward for long-term patient investors.”