Goldman Sachs Highlights 4 Reasons Apple (AAPL) Sell-Off Should Be Bought

January 19, 2016 8:43 AM EST
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Price: $138.20 -3%

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    46 Buy, 17 Hold, 5 Sell

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With nearly every supplier warning into Apple's (NASDAQ: AAPL) December quarter results on January 26, investors are not surprisingly skittish on the quarter and outlook. However, while guidance will likely be weak, Goldman Sachs analyst Simona Jankowski is telling clients the bad news is priced in and the pullback is a buying opportunity.

For the December quarter (1Q), the analyst is forecasting revenues of $76.8 billion, in line with consensus, and EPS of $3.28 versus the consensus at $3.24. For the March quarter (2Q), they are modeling revenues and EPS of $57.1 billion and $2.30 versus the consensus of $56.5 billion and $2.26. Given Apple's typical conservatism, they expect March quarter revenue guidance to be $53-55 billion.

Apple share are down12% over the last month, in line with the analyst's coverage but worse than the S&P/Nasdaq decline of 8%/10%. The analyst cited four reasons the weakness is a buying opportunity:

  1. we believe the guide-down is already expected/priced in,
  2. Apple is a defensive stock relative to the current market sell-off,
  3. the March quarter represents the trough in yoy revenue growth, which is typically a good time to buy hardware stocks, with easing comps and the next product cycles (iPhone 5e, 7) driving acceleration for the remainder of the year, and
  4. we expect the multiple to increasingly reflect the evolution to “Apple-as-a-Service” (recurring hardware & services as users shift to iPhone installment plans and adopt new products/services in the Apple ecosystem, such as Apple TV, Music, Pay, Watch, etc., making the 500mn iPhone installed base stickier).

The firm reiterated their Conviction Buy List rating and price target of $155 on Apple.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $97.13 yesterday.

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