Goldman downgrades Apple to sell, predicts nearly 20% drop in stock from here

Published Fri, Apr 17 20206:32 AM EDT

(This story is for CNBC PRO subscribers only.) Apple has led a rebound in this market off the March lows as investors bet iPhone sales can bounce back quickly once the recession stemming from the pandemic passes. Goldman Sachs isn't counting on that to happen. The investment firm downgraded Apple to sell from neutral Friday and said it sees slowing iPhone demand as users hang on to phones longer in addition to stagnating services growth. The firm also sees a lingering effect on prices, where Apple is unable to charge more for smartphones. Goldman lowered its price target on the stock to $233 from $250. Apple shares closed Thursday at $286.69 a share, up more than 30% from its March low. Goldman's new price target represents a 19% drop from Thursday's close. "After two further GDP growth cuts from the GS Economics team and with much of the world in lockdown we are downgrading our rating to sell and reducing our Apple forecasts for a third time since February 17," analyst Rod Hall said. "At this point we have selected a cautious scenario for our central case but we note that COVID-19 is unlike any recession seen in modern times in the severity of the initial downturn with an unpredictable shape to the recovery," he said. The analyst also said while it wasn't his base case, he was concerned about a delay in the launching of a 5G iPhone. "Limited global travel at this crucial point in Apple's 2020 iPhone final engineering and production process could result in a delayed launch this year," he said. The firm said consumer demand may not return till late 2021 and that it would feel more bullish with evidence it would return sooner. "Ultimately, we believe Apple is a mature cyclical company that is likely to trade in a range relative to the broader market. Because of that our view tends to be increasingly positive when we believe consensus earnings expectations for the company are overly pessimistic on a 24-month basis," they said. Shares of Apple are up over 6% on the week. The company will report its fiscal second quarter earnings on April 30. "There are multiple examples of ASPs (average selling price) dropping in the midst of a recession and then remaining weak well beyond the point when units recover," Hall added. Apple shares were up about 1% in premarket trading Friday as the rest of the market was set to bounce.

Tim Cook, chief executive officer of Apple Inc., listens during an American Workforce Policy Advisory board meeting with U.S. President Donald Trump, not pictured, in the State Dining Room of the White House in Washington, D.C., U.S., on Wednesday, March 6, 2019.

Al Drago | Bloomberg | Getty Images

(This story is for CNBC PRO subscribers only.)

Apple has led a rebound in this market off the March lows as investors bet iPhone sales can bounce back quickly once the recession stemming from the pandemic passes. Goldman Sachs isn't counting on that to happen.