From a note to clients by analyst Matthew Cabral that landed on my crowded desktop Monday:
Against a backdrop of firming fundamental data points, the logical question is “why remain Neutral?” For us, with the stock up 15% from the day prior to the iPhone launch and now trading at nearly 18x Street and CSe CY20 EPS, risk/reward looks more balanced from here. To put that into context, Apple has traded at an average of ~13x over the past five years and only once sustained a multiple above 15x over that period (Aug-Oct 2018).
We see the potential in Apple’s Services push; however, the pivot into owned subscription-based offerings (TV+, Music, News, Arcade) is a vastly different (and more uncertain) path forward vs. a historical growth trajectory led primarily by creating the distribution platform for third-party content (i.e., App Store, Licensing, iTunes).
Further, despite NT improvement, iPhone (56% of sales LTM) remains a mature product category with declining margins (Product GMs down >200bps y/y ytd) and requiring greater investment to offset (total R&D is up 15.5% y/y ytd). To get more positive at these levels, we would need to see greater Services-driven EPS upside to justify an increasingly premium valuation.
Maintains Neutral rating and raises price target to $221 from $209.
My take: Cabral's 12-month price target has moved from 14% below Apple's current price to 9% below. Seems like he's hedging his bets.