Goldman Sachs on Apple stock

In an Apple Inc. (NASDAQ:AAPL) research report released by Goldman Sachs Group, Inc. (NYSE:GS) on Sunday titled, “US carrier subsidy and upgrade policies” it reviews the stock’s recent under performance and factors affecting it.

As noted by the report, since Apple Inc. (NASDAQ:AAPL) reported its earnings in the March quarter, its stock price has dropped by 13 percent; this compares to the S&P 500’s seven percent drop during the same time. This decline comes from macro concerns and profit-taking by an increasing number of risk-averse investors but also concern for the momentum of iPhones in the short-term and the possible pressure placed on carrier subsidies for the ever-popular smartphones as further contributors.

Additional risks to Apple’s stock have included supply chain disruptions, increased platform competition, and potential legal and regulatory restrictions, according to the report.

Should these factors be causes of concern for Apple’s stock price? No, analysts remain positive.

The report further suggests that a decline in smartphone subsidies by US carriers probably won’t happen thanks to the competitive nature of the market–four player who all want a greater adoption of smartphones. Policies have been put in place that will lengthen smartphone upgrade cycles from the expansion of early upgrades and rising upgrade fees. Retail prices are not expected to rise for the phones and analysts believe that an iPhone is the best option for carriers as they shift their users from feature phones to smartphones.

In addition, Goldman also doesn’t see large incremental improvements on the upgrade windows after this year and that new upgrade policies may go to higher-end smartphones such as the iPhone. With fixed upgrade fees, customers are likely to gain from subsidies to buy higher-end devices. Therefore, this will further move market share to Apple and it is likely to happen in the December quarter when the iPhone5 has a wide availability.

AAPL price performance chart

Overall, the company remains positive on the stock and has a “Buy” rating on it with a target price of $850 for 12 months. Goldman Sachs said the target price is based on a 17X multiple of it’s 2012 EPS estimate.