Shares of Apple (AAPL) are sliding on Monday after Rosenblatt with analyst Jun Zhang downgraded the stock to Sell as he believes new iPhone sales will be disappointing, iPad sales growth will slow in the second half of 2019, and service revenue growth will also decelerate. On the bullish side, Wedbush analyst Daniel Ives reiterated an Outperform rating on Apple saying his firm’s Asian checks give him confidence in iPhone demand despite noise.
SELL APPLE: In a research note to investors, Rosenblatt's Zhang downgraded Apple to Sell from Neutral, citing his view that its fundamental will deteriorate over the next 6-12 months. The analyst believes new iPhone sales will be disappointing, iPad sales growth will slow in the second half of 2019, and that service revenue growth will also decelerate. Zhang also noted that his analysis of retail data suggests overall iPhone sales were flat month-over-month in June and said he expects major iPhone upgrades to be pushed out to the second half of 2020 given what are seen as limited upgrades for the new iPhone models in the fall and expectations of a 5G iPhone in 2020.
The analyst argued that the iPhone XS was "one of the worst selling iPhone models in the history of Apple," with the company’s three-model strategy also making the middle model in terms of price lag way behind the other models. While the analyst cut his rating to Sell, he does not see Apple as a stock to short, as the company has "plenty of cash and a meaningful stock buyback program." Zhang kept a $150 price target on Apple shares.
STABLE IPHONE DEMAND: Keeping a bullish view on Apple, Wedbush analyst Daniel Ives told investors in a research note of his own that his firm's Asia checks over the past week suggest stable Apple iPhone demand globally heading into the crucial September quarter with some puts and takes that overall he would characterize as "better than feared" in light of the noisiest time he could remember for Cupertino. While China remains a wild card, the analyst is bullish into Apple's future heading into 2020 and beyond. Thus far he has not seen "many cracks in the armor" post-Huawei swirls and continues to estimate between 60M-70M Chinese consumers will be in the window of an iPhone upgrade opportunity for Apple over the next 12-18 months.
On the iPhone launch front, Ives still expects a trifecta of iPhone 11 releases in the September timeframe with his expectation that all versions will have an ultra-wideband sensor with the top two models having the three-lens camera functionality while the next XR version is expected to have dual cameras. The analyst also notes that a few component vendors increased forecasts for the September quarter on Macs given some underlying demand trends into the next few quarters, which bodes well for this product segment in terms of Street forecasts. Lastly from a new product perspective, he is expecting the new AirPods version 3 to be launched toward year-end ahead of holiday season, with some design enhancements, waterproof and higher price points. Incrementally more positive on global iPhone demand and confidence in his forecast for 180M iPhone units for 2019, Ives reiterates an Outperform rating and $235 price target on the shares.
PRICE ACTION: In late morning trading, shares of Apple have dropped 2.2% to $199.68.
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