Jefferies initiates Apple coverage at $265

From a note to clients by analyst Timothy O’Shea snagged by AppleInsider:

Jefferies initiated coverage of Apple’s stock with a buy rating on Monday, estimating the tech giant can build “a massive” services business on its core iPhone business.

“We believe AAPL’s stable iPhone business will serve as the foundation upon which it can build a massive, recurring and high margin Services business,” Jefferies analyst Timothy O’Shea said in a note.

O’Shea said the firm believes the services business could make up 25 percent of Apple’s revenue by fiscal year 2020, as well as 40 percent of the company’s gross profit.

“Applying a higher multiple compared to the lower margin hardware business, we see a significant opportunity for investors as Services alone could be worth $111 to $177 per share by that time,” O’Shea said.

“Services growth will be led by App Store and Apple Music, and we see an opportunity to introduce new services over time,” O’Shea added.

Initiates with a Buy rating and $265 price target. 

My take: Waiting to see the note.

5 Comments

  1. Gregg Thurman said:
    Tim is one of those I show as giving true one year targets, although I believe this one will be surpassed before fiscal year 2019 runs out.

    0
    October 29, 2018
  2. Robert Paul Leitao said:
    The narrative suggests the $265 price target is a starting point for coverage. Applying the forecast valuation for Services in FY2020, the price target will catapult well above $300 per share by this time next year.

    2
    October 29, 2018
  3. Doug Montgomery said:
    These late to the party upgrades so close to Earnings have me concerned that we’re about to see the mother of all drops when/if iPhone unit counts are low. Saw today that market is pricing in +/- 6% on Earnings, but given the market of late, if AAPL fails to wow all bets could be off.

    0
    October 29, 2018

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