Maxim analyst Nehal Chokshi downgraded Apple (AAPL) to Sell on Thursday, citing his belief that iPhone sales would be lower than expected in 2020. The analyst's Sell rating is somewhat rare, with just seven analysts holding a Sell or equivalent rating in the last 12 months, according to Bloomberg data, and comes amid a wealth of more bullish recent commentary from Chokshi's peers.
MAXIM CUTS APPLE TO SELL: In a research note to investors on Thursday, Maxim's Nehal Chokshi lowered his rating on Apple to Sell from Hold with a $190 price target based on a sum-of-the-parts analysis. According to his firm's recent proprietary survey data, Chokshi said he expects 2020 iPhone units to decline 3% year-over-year, with iPhone revenue down 5% year-over-year. Based on his firm's analysis of previous iPhone revenue y/y growth trajectories, the analyst said he expects y/y growth to peak in the first quarter of fiscal 2020 and bottom in the second quarter. He is projecting iPhone revenue in fiscal Q2 that is 14% below consensus and iPhone revenue that is 6% below consensus for fiscal year 2020. Additionally, Chokshi said he expects Apple's operating profit to decline y/y due to his below consensus iPhone view, despite ongoing growth in services and wearables. The analyst said he expects overall FY20 operating profits to decline 2% y/y, as ongoing growth in services and wearables will only partially offset iPhone declines.
While he expects the 5G iPhone, which will launch in September 2020, to drive fiscal 2021 iPhone revenue up 4% y/y%, despite his survey data indicating otherwise, he contended that regardless of the strength of the 5G cycle, he thinks assigning peak multiples to expected peak iPhone revenue is "unjustified."
Chokshi further stated that increasing investor expectations that Apple will transform the healthcare industry are "unrealistic." The Maxim analyst said he believes that there are parallels to "disappointing attempts at disruption" with a full-fledged Apple TV set in 2012 and in the automotive industry in 2016.
IPHONE BUSINESS GENERATING 'SIGNIFICANT' CASH FLOW: Earlier this week, RBC Capital analyst Robert Muller issued a decidedly different opinion on Apple, initiating coverage of the shares with an Outperform rating and $295 price target. The company's iPhone base business continues to generate significant cash flow while 5G should accelerate its growth, Muller told investors in his own research note. He believes Apple's valuation provides a "call option on future innovation" and notes that the company continues to return "market-leading" amounts of cash to investors.
BofA Merrill Lynch analyst Wamsi Mohan noted on November 6 that his recent talks with investors lead him to believe there is skepticism about incremental upside in Apple shares with the stock up 63% year-to-date at that time. However, his analysis suggests "history favors owning Apple especially after a weak cycle" and he said he expects material relative outperformance heading into the 5G cycle, leaving "significant room for upside" in the shares.
Following the company's recent earnings report, Morgan Stanley analyst Katy Huberty raised her price target on Apple shares to $296 from $289 to reflect slightly higher revenue and stronger cash generation in FY20 following the company's Q4 results, which she called "clean across the board." The company's guidance reflects a positive start to the iPhone 11 cycle and she thinks strength across iPhone, Wearables, and Services are sustainable, Huberty added. Canaccord analyst T. Michael Walkley recently raised his price target on Apple to $275 and said he was encouraged by the initial strong iPhone 11 demand and estimates its installed base is leading to record Services revenue. The price target increase reflects healthy ongoing iPhone sales with 5G leading to stronger iPhone sales in 2021, he added.
PRICE ACTION: In morning trading, shares of Apple are down 0.4% to $263.32.