Goldman On Apple: Waiting On The Sidelines

Apple Inc. AAPL's vast and loyal customer base implies the iPhone maker boasts significant long-term potential, but that doesn't mean investors should rush to buy the stock, according to Goldman Sachs.

The Analyst

Goldman Sachs' Rod Hall initiated coverage of Apple with a Neutral rating and $161 price target.

The Thesis

Apple's customer base stands at more than 600 million primary users, which gives the company "significant longer-term value" — but the same can't be said for the near-term, Hall said in the initiation note. (See the analyst's track record here.)

Apple signaled weakening near-term data points on iPhone X demand, which could result in negative revenue estimate revisions through Apple's June quarter, the analyst said.

Beyond the June quarter, Apple does have a path to share price improvements and earnings growth, Hall said. The Street's longer-term iPhone revenue growth estimate of 2 percent in fiscal 2019 and fiscal 2020 is below Goldman Sach's 5-percent estimate.

Another aspect of Apple's longer-term growth story comes from the company's ability to increase its stock buyback to $192 billion from fiscal 2018 through fiscal 2020 and simultaneously boost its dividend payout, and the potential for "more meaningful" M&A activity, Hall said.

It would be "difficult for the stock to outperform" at current levels in the near-term given a poor outlook, the analyst said. But the likelihood of Apple delivering "significant" upside to the Street's revenue and EPS forecasts in fiscal 2019 and 2020 could "help support valuation as longer-term shareholders look beyond the near-term dynamics," Hall said.