Apple analyst explains why the stock is not a “buy”
Apples (AAPL) The valuation already reflects a strong upcoming cycle for the iPhone 12 and its service growth is expected to slow over the next three years, predicts UBS analyst David Vogt.
“At its core, Apple is a ‘product’ company with about 80% of its revenue coming from smartphones, personal computers, tablets and portable devices,” Vogt said in a note to customers. “After a one-time increase due to COVID in Mac / iPads and a one-year cycle for the iPhone 12, in FY 21 ‘product’ revenue is expected to return to single-digit growth over the course of the year. the next three years. “
Vogt has a neutral rating on the action. Shares of the iPhone maker were down about 1% in Wednesday’s midday session.
5G cycle at the price of
There has been a lot of anticipation before the launch of the next generation iPhones. But they may already be part of the share price.
“While Apple stocks typically outperform the market in the months leading up to an iPhone’s launch, post-launch stocks have historically underperformed the market,” Vogt wrote. “We believe Apple’s shares are already reflecting the growth of the ‘5G cycle’.”
Vogt acknowledges that Apple’s service revenues have been strong.
“However, service revenues related to sales of new iPhones and the continued installed base of iPhone units are expected to slow significantly,” he warned. “Services revenue is only expected to grow at a compound annual growth rate of 11% over the next three years, a significant deceleration from 17% in the previous three years.”
Re-acceleration of services is “essential to increase estimates”
Vogt has a target price of $ 115 on the stock.
“Over the past six months, Apple’s valuation has significantly expanded to 29 times in anticipation of a 5G ‘super cycle’,” he wrote. “Our intrinsic analysis supports a multiple of 27, which is about 1 standard deviation above its one-year average multiple.”
The re-acceleration of services is “essential to raise the estimates”, he added.
“If several of Apple’s under-monetized services Live TV + and News mature and help re-accelerate the segment’s revenue to 17% growth over the next three years FY23, consolidated revenue could be $ 13 billion higher. dollars to our forecast, ”he added.
Earlier this month, the tech giant launched its Apple watch series 6. On the same day, he announced that customers will be able to bundle services under one Apple One offering, with a new fitness app called fitness +.
Ines covers the US stock market. Follow her on Twitter at @ines_ferre