Bank of Montreal raises Apple price target, lowers guidance

BMO’s Tim Long still expects Apple’s share price to be lower in 12 months than it is today.

From a note to clients that landed in my inbox Monday:

We are not making any changes to our iPhone unit estimates, although we see more likelihood of downside than upside given that recent supply chain data points have not been that encouraging. We remain on the sidelines on AAPL shares as we believe the upcoming products coming in September may not be enough to trigger an upgrade cycle.

We are roughly in line with consensus for the June quarter. We are meaningfully below for the September quarter, with most metrics lower. Despite potentially easier comparisons for the December quarter (last year the iPhone X came in the December quarter), we are modeling units to be down slightly year over year.

We are raising our target price on the shares of AAPL to $184 from $171 as we raise the target multiple to 14x from 13x our CY2019 EPS estimate of $13.14. As illustrated below [see Exhibit 2], AAPL traded nearly at parity with the S&P back in 2014 (end of August hit ~99%) as excitement for the first large screen iPhones (iPhone 6 and 6 Plus) was building. AAPL is currently trading at only an 8% discount to the S&P (down from 17% three months ago), while on a three- and five-year historical average, it has typically traded at a 23% and 20% discount, respectively. We believe the stock is trading at a premium relative valuation based primarily on the huge stock buyback program.

Click to enlarge.

Maintains Market Perform rating and raises price target to $184 from $171.

My take: With a one-point change in his target multiple, Long goes from the third most bearish analyst on my price-target spreadsheet to the seventh. But he’s still underwater. In other words, he’s telling his clients that Apple’s share price is likely to be lower in 12 months than it is today.

3 Comments

  1. David Drinkwater said:

    “AAPL is currently trading at only an 8% discount to the S&P (down from 17% three months ago), while on a three- and five-year historical average, it has typically traded at a 23% and 20% discount, respectively. We believe the stock is trading at a premium relative valuation based primarily on the huge stock buyback program.”

    How the hell is an 8% discount a premium valuation. Here I will at least take issue with the fact that an IBM has a PE ratio if 24, MSFT 71, and AMZN 230. (I “discount” the Amazon metric, because I don’t think earnings is the right metric, but its still a ridiculous number.)

    An 8% discount might be a recent relative high, but it is hardly a premium valuation.

    3
    July 23, 2018
  2. Michael Thompson said:

    I posted this last week, but it must be repeated for anyone that missed it.

    In the quarter ending 6/30/18, while long-term Apple Uber Bear Tim Long was consistently downgrading Apple, his firm BMO was increasing their Apple position by 27%. They purchased 2.667 MILLION shares of Apple in the most recent quarter.

    https://whalewisdom.com/filer/harris-financial-corp#tabholdings_tab_link

    I guess that BMO is continuing to buy Apple and wants to do so at a cheaper price.

    3
    July 23, 2018
  3. Robert Paul Leitao said:

    Apple is currently trading at about 14.4 times the Street’s eps estimate for FY2019. The company is also in the midst of a massive share repurchase program which may reduce the fully diluted share count in the range of 8% to 10% on a year-over-year basis throughout next fiscal year. Additionally, Apple’s largest fiscal quarter (FQ1) which begins in late September will also realize a big boost to eps year-over-year from the recent tax law changes.

    Second, to project iPhone unit sales for the model year beginning in late September on “supply chain data points” isn’t the most reliable gauge of future demand for the iPhone line. The new iPhone models don’t need to “trigger an upgrade cycle” as much as the new handsets need to deliver the iPhone X’s innovations further down the product line. This is now far more about a robust environment for developers and advances in eco-system development than is it about how many iPhones Apple might sell in a particular quarter or fiscal year.

    Apple’s fastest-growing revenue segments are Services and Other Products. The Mac and iPad lines are now delivering fairly consistent unit sales and mid-single-digit unit sales growth for the iPhone line next fiscal year combined with continued revenue growth in Services will deliver significant top line growth.

    In my view, the analyst’s argument that Apple is trading at a “premium relative valuation” isn’t a convincing argument. Apple will deliver organic revenue and net income growth from operations in FY2019 before consideration of the massive share repurchase program which will amplify the impact on earnings per share.

    1
    July 23, 2018

Leave a Reply