Goldman Cuts Multiple Hardware Stock Ratings, Sees Weakness Into 2021 -- Barrons.com
DOW JONES & COMPANY, INC. 1:22 PM ET 4/17/2020
Symbol Last Price Change |
| AAPL | 277.56 | -9.13 (-3.18%) | | QCOM | 75.51 | -1.34 (-1.74%) | | SONO | 8.4454 | -0.8346 (-8.99%) | | HPQ | 15.38 | +0.14 (+0.92%) | | LITE | 74.97 | -3.96 (-5.02%) | | NTNX | 16.755 | -0.645 (-3.71%) | | ADTN | 9.45 | +1.16 (+13.99%) | | JNPR | 22.52 | +0.58 (+2.64%) | | QUOTES AS OF 02:38:06 PM ET 04/17/2020 |
Warning investors that many hardware stocks are likely to see weak business conditions linger into 2021, Goldman Sachs analyst Rod Hall today made a broad bearish call on the group, cutting ratings on five companies and generally sounding the alarm about the prospects for consumer-electronics hardware companies.
"The negative impact of Covid-19 driven global social distancing on the broader economy and several of our companies' end markets has been severe," Hall writes. "We conclude that a number of our companies will be slower to recover with weakness persisting into 2021 even as our economists forecast a return to GDP growth in that year. Specifically, we expect consumer electronics demand to be slow to return and [average selling price] weakness to persist well into 2021 similar to what we have observed in prior downturns."
Hall doesn't spare the enterprise players. He says a predictive index of enterprise spending dropped by more in March than it has in its history going back to 2004, falling below the weakest point in the 2008-09 recession.
He also finds there is "negative operating leverage" risk for many of the companies. "Companies may tend to reduce costs slower than they otherwise would in a downturn of this magnitude in order to preserve employment," he writes.
Hall made eight total rating changes today.
-- Apple(AAPL) : To Sell from Neutral, with a new $233 price target. He sees
a major fall off in iPhone unit sales. (See our separate story for more
detail.)
-- Qualcomm(QCOM) : To Sell from Neutral, target $61, down from $77. The
downgrade reflects Hall's expectation of weakening handset demand amid a
global downturn. He thinks weakening smartphone demand will drive
earnings below consensus for both this year and next year.
-- Sonos(SONO) : To Sell from Buy, new target $7.50, down from $20. "For
Apple(AAPL), Sonos(SONO) and Qualcomm(QCOM), our 2021 forecasts are pacing well below
consensus for various consumer demand related reasons with the main one
being slower ASP and unit recovery than is generally expected," Hall
writes. He adds that for Sonos(SONO) in particular, "we now expect a severe
reduction in smart speaker demand with Sonos(SONO) products generally at
the top end of the pricing."
-- HP Inc.(HPQ) : He resumes coverage with a Sell rating and $11 target.
"Our updated 2021 EPS forecast for HP is 41% below consensus, driven
mainly by a large reduction in our printing supplies revenue forecast,"
he writes. "In addition, we continue to believe PC demand is likely to
pace well below consensus expectations after a short-lived bounce driven
by work at home in [the calendar first quarter]."
-- Lumentum Holdings(LITE) : To Neutral from Buy, price target $87, down
from $102. The downgrade reflects Hall's caution on the impact on the
company's sales from softening Apple(AAPL) iPhone demand.
-- Nutanix(NTNX) : To Sell from Buy, target now $15, down from $47. "We do
not believe that company's growth plans are sustainable in this
environment and our new forecasts fall well below consensus as a result,"
he writes.
-- Adtran(ADTN) : Rating raised to Buy from Neutral, target remains $13.
"Our upgrade is a result of the expectation that the company benefits
from increased broadband demand," he writes.
-- Juniper Networks(JNPR) : Rating raised to Neutral from Sell, target $23,
up from $21. "We would expect Juniper's large carrier and hyperscale
business to be relatively stable against consensus expectations," writes
Hall. Hall also cut his target prices on a slew of other stocks, reducing Sell-rated NetApp (NTAP) to $34 from $46, Neutral-rated Corning (GLW) to $21, from $28, and Neutral-rated Hewlett Packard Enterprise (HPQ) to $11, from $14.
In recent trading, Sonos(SONO) is down 6.3%, while Apple(AAPL), Qualcomm(QCOM), Lumentum(LITE), and Nutanix(NTNX) all sport smaller declines. Adtran(ADTN) is up 16%, Juniper is up 2.4%, and HP -- despite the Sell rating -- is up 1.6%. The S&P 500 is up 1.8%.
Write to Eric J. Savitz at eric.savitz@barrons.com |
