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Stocks  | July 24, 2020

As tech earnings kick off in earnest, some of the market’s hottest companies are showing signs of cooling.

Netflix (ticker: NFLX) had a great June quarter, but cautioned that September quarter subscriber growth would be below investor expectations, after two quarters of blowout growth. Its stock has soared 51% year to date. Microsoft (MSFT) had a fantastic quarter, beating estimates at the top and bottom lines, but margins were down a little, and growth in the Azure cloud business decelerated. The stock is sagging modestly, though still up 35% year to date.

Could Apple (AAPL) be the next disappointment? With the stock up 33% year to date, the setup is similar. In recent weeks, Wall Street analyst estimates and target prices have ratcheted higher, and all eyes remain on the fall iPhone launch, which Apple isn’t going to discuss on the call. Pole-vaulting over the Street’s sky-high expectations is going to be a challenge.

Goldman Sachs analyst Rod Hall cautions in a research note previewing the quarter that he finds Apple’s recent stock performance and its current trading level unsustainable. He recommends investors avoid the stock.

Hall’s view is the main focus next week will be whether Apple provides September quarter guidance. He contends they won’t, given uncertainty around both Covid-19 and the timing of the fall iPhone launch. “We continue to assume that Apple will deliver the iPhone on time in late September,” Hall writes. “We are well aware of both supply and press speculation to the contrary but our experience and Apple’s strong supply chain presence suggest it is more likely to surprise on the upside in terms of execution.” But he estimates that a one-month delay would trim revenues by 7% and profits by 6% in the December quarter.

For the September 2021 fiscal year, Hall’s EPS estimate is 16% below consensus, because he expects product unit sales and average sales prices to disappoint, and that services revenue growth will slow. “We would expect late 2020 product demand results to begin to support our thesis with ASP weakness beginning to play out in early 2021,” he writes.

Hall lifts his price target to $299 from $263, but keeps his Sell rating.

Apple reports earnings on July 29. On Thursday, the stock is off 1%, to $385.07.

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