Analyst: Downside Q3 risk greater than upside opportunity

Asymmetry, thy name is Apple.

From a note to clients by BMO’s Tim Long that landed in my inbox today:

Upside Scenario $206.00: Our upside case for AAPL is $206, based on CY2019E EPS of $13.76 with a target multiple of 15x P/E. Our upside case includes an additional 100 bps of revenue growth and an additional 100 bps of margin expansion in CY2019 versus our base case assumptions.

Downside Scenario $163.00: By comparison, our downside case for AAPL is $163, based on CY2019E EPS of $12.54 with a target multiple of 13x P/E. This case assumes a 100-bp reduction of revenue growth and 100 bps less operating margin in CY2019 versus our base case assumptions.

Maintains Market Perform rating and $184 price target.

My take: Long’s target is one of the Street’s lowest, but this downside-upside asymmetry is conventional wisdom.

12 Comments

  1. John Kirk said:
    This strikes me as “we don’t know what we’re talking about, but we’re going to pretend we do by spouting a bunch of gobbledegook and hope you’ll continue to pay us for our, mostly useless, services.”

    Look, if the weatherman told me that the tide had a chance of going in or out at the same time, I’d stop listening to that weatherman. If you’re going to tell me that Apple could go up or down, you’re telling me nothing.

    7
    July 31, 2018
  2. John Blackburn said:
    Silly report, but an analyst with the name Long is pretty cool.

    3
    July 31, 2018
  3. Gary Morton said:
    Hmmm, “a 100-bp reduction of revenue growth and 100 bps less operating margin in CY2019 versus our base case assumptions.” If you plug in these numbers into a mathematical model for Apple in 2019 and just account for the reduction in share count due to the buybacks, EPS is over $13 per share. Not sure how Long comes up with $12.54 let alone the 13x multiple. Many analyst models do not seem to be able to accommodate a reduction in share count. Anyway, if the multiple went below 13X and the share price did hit $163, the buyback machine would go into turbo-overdrive and long term shareholders would likely see great returns in future years.

    3
    July 31, 2018
    • Fred Stein said:
      Yup. It’s amazing.

      Apple will buyback about $350B over the next five years, or over 35% at today’s stock price. Pick any scenario upside, downside, sideways. It’s tough to defend a $163 target without a black swan event.

      1
      July 31, 2018
  4. Gregg_Thurman@me.com said:
    Who cares about Long, Sacconaghi et al?

    APPE BEAT BIG TIME.

    Right now I’m feeling EXTREMELY good about my August 10th $195.00/$197.50 Call Spreads.

    0
    July 31, 2018
  5. Gregg_Thurman@me.com said:
    “Downside Q3 risk greater than upside opportunity”

    It isn’t nice to kick someone when they’re down, but Long should consider a different line of work, he obviously isn’t very good at this one.

    Watch the price target revisions through the remainder of this week. What a joy ride that will be.

    1
    July 31, 2018
  6. Stephen Young said:
    Long putting AAPL’s PE between 13 and 15 is ridiculous, but it is the only way he can make stock price work.

    0
    July 31, 2018

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