From a note to clients by analyst Wamsi Mohan that landed on my desktop Monday:
We upgrade Apple to Buy (post our downgrade on Nov 2, 2018), predicated on:
- Stability of supply chain order cuts and large reversal of inventory overhang in iPhones
- Gross profit dollars reversing from declines to growth in 2H19, which is correlated to the stock price
- Modest reacceleration in services (China gaming) including upcoming announcements
- Overshoot of negative estimate revisions particularly in F20/21,
- Growth across healthcare, wearables and increasing services penetration,
- Growing installed base of users that will refresh supporting 200mn iPhone average annual shipments with cyclicality around it
- Competitive products supporting a higher price umbrella around foldable and 5G phones,
- Highly loyal user base (Fig 20/21 show results of our global survey of 151,262 total respondents across U.S., U.K, China, and India), with low churn where demographic changes are in Apple’s favor,
- Strong FCF with potential for M&A, and capital return (support for the stock given the recent selloff and lowered relative weighting), and
- Valuation ex-cash attractive at 10x.
Upgrades to Buy from Neutral and raises price objective to $210 from $180.
Below: Fig. 21
Click to enlarge.
My take: Adds some color to the CNBC report that sent Apple up 2.3% in early trading.