Royal Bank of Canada re-initiates Apple coverage

Analyst Robert Mulller picks up where Amit Daryanani left off.

From TheStreet:

Apple is in a strong position thanks to avenues of deeper integration available to the tech giant, according to a bullish note from RBC Capital Markets that initiated coverage on Apple shares with an outperform rating and $295 price target.

RBC is bullish on the iPhone because the product has become “deeply ingrained in everyday life.” While analyst Robert Muller does see an elongating product replacement cycle, RBC still doesn’t foresee a decline in smartphone penetration.

The firm also is bullish on the company’s balance sheet which gives Apple the strength to return “significant cash flow to shareholders.”

“Since 2015, AAPL has repurchased $242BN of common shares, over 3x the amount of the second-place Microsoft and Oracle. At present, AAPL has $100BN of net cash on hand,” Muller said. “With management’s intention to achieve a cash-neutral position, we expect the majority of that amount to return to investors via buybacks.”

When it comes to the company’s $295 price target, the firm admits that its 20x future estimates multiple is high when compared with peers but “we believe the brand strength and margin profile, among other considerations, justify the current valuation. In essence, we believe investors receive a nearly free call option on all future innovation.”

Outperform rating, $295 price target.

I’ve requested the note.

13 Comments

  1. Gregg Thurman said:

    $295. Imagine.

    $300 is the normal. Rod Hall and Pierre Ferrari can go to hell.

    2
    November 13, 2019
  2. Fred Stein said:

    I love the target and the plain language.

    I especially like that he sees ‘elongating product product replacement cycle’ as a good thing.

    0
    November 13, 2019
  3. Fred Stein said:

    Slightly OT, but not really. We’re talking about valuation and PT’s.

    https://appleinsider.com/articles/19/11/12/on-its-own-airpods-could-be-a-175-billion-enterprise

    The AppleInsider $175 valuation of AirPods support RBCs target. At the end of the article, there’s a comparison to Spotify’s valuation and Spotify’s lack of profitability. Folks who worry about Apple’s $6B spend in video or their 1 year giveaway, don’t see that Apple has 10 year plan for video streaming.

    1
    November 13, 2019
    • Gregg Thurman said:

      Make that a 20-year plan and I’m with you, Fred.

      Rome wasn’t built in a day.

      Leading up to the launch of Apple TV+ Apple began working on the development of the Apple TV, iTunes, AirPods, Apple Music, Home Pods, A-(x) processors, H-1 processors, hiring leading movie execs, AR/VR glasses/technology, proprietary display technology, and buying boutique/specialty tech companies for critical IP and talent. I’m sure I missed something in what Apple has amassed/developed in the last 10 years that will be very important to Services in the next couple of years, but you get the idea.

      Nothing about Apple’s Services could be considered off-the-shelf IP, either software or hardware. Even today The Morning Show and See are streaming at higher than industry standard rates.

      I personally think Netflix is toast. It has nothing proprietary to differentiate itself from Amazon and other all you can eat models.

      1
      November 13, 2019
  4. victor castroll said:

     won’t see a 3 till 2022.

    at best.

    Where do analysts go to die?

    Seems like RBC found a good company man who wrote his first note at the water cooler. And the note is worth less than the cup he drank the water out of.

    Absolutely zero value add…

    0
    November 13, 2019
  5. Gregg Thurman said:

     won’t see a 3 till 2022.

    Who cares? Historically, over the course of the last 36 quarters (FQ1/2011: chosen as start period because it was sufficiently far enough away from the effects of the bank meltdown), AAPL has risen 5.88%, on average, every quarter. Using that metric, admittedly very unscientific, in the next year (November 2020), AAPL should rise from $~264 to ~$330. And that’s discounting the very real and positive sentiment surrounding Apple’s shift to a more predictable and stable Services revenue model (that garners higher PEs than does AAPL today).

    Enjoy your Puts, Victor, I didn’t like mine much.

    1
    November 13, 2019
    • victor castroll said:

      La Jolla boy. Let’s meet in person.

      0
      November 13, 2019
  6. Michael Thompson said:

    File this under: All That We Do Is Win

    https://seekingalpha.com/article/4305958-apple-now-borrows-free-money

    We’re now officially borrowing money at 0.0% interest. Apple issued a Euro-denominated bond with a 0% interest rate. Per Apple’s 2019 10-K, in 2020 we will owe over $10 billion in principal to payoff existing term debt that comes due.

    Here’s the good news, it appears that we are simply swapping higher interest rate debt for 0.0% interest debt. In fiscal 2019, we paid $3.576 billion to service our existing debt. I’d be in favor of converting ALL of our debt to 0.0% debt and saving the $3.576 billion in debt service. Let’s let that number after taxes flow to the bottom line.

    All that we do is win. It sure looks like that “3 handle” is coming real SOON. Haha. I’d sure hate to be on the wrong side of this trade. Luckily for me, I’m leveraged and have been for years on the SMART side of the trade.

    1
    November 13, 2019
  7. Jerry W Doyle said:

    Is victor castroll still in the house? Are you still in the house victor? Darn! vic has left the building.

    When you see victor next, tell him that Apple will be at or nipping $300 a share when Tim C reports Q1 earnings and forward guidance.

    Also, tell good Brother victor that subsequent to the Q1 earnings call that Apple begins its methodical march to $400, arriving by late 2021.

    Let our blessed brother victor also know that there are no “negative ghost riders” in the sky.

    May our skilled and competent brother victor be filled with a “Spirit of Edification” on where Apple is poised to ascend; and may our congenial brother victor find new-found awareness instill deeply within him a sense of spiritual Apple awakening! -:)

    Let our enjoyable brother victor know that Apple is having a VERY GOOD YEAR! Tell him that sometimes love travels a gravel road; but that his love for Apple now is on a smooth German autobahn. Blow those twin turbos victor!

    I believe that Apple has gained around 40 percent this year and around 67 percent year to date! Let brother victor know that information, too.

    The iPhone 11 is an unequivocal success! We’ll know fully the extent when Tim next talks to us.

    Our good Chinese citizens are gobbling up the new AirPod Pros so fast in China that it is difficult to supply their appetites for the new device.

    Public acceptance of Apple’s new streaming service is deafening the movie critics croaked voices, who all seem oblivious, unaware, unconscious and unmindful as to what the public truly likes in content.

    There is this whole line of new Apple products flowing through the Apple pipeline; and, it all is coming after Q4’19 highest revenue ever. So, what does that portend for Q1’20? “…. C’est Bon!”

    President DJT knows how to juice and play the economy. Apple was up $2.62 per share today when the press announced that trade talks were “unsettling” as China refused to commit a specific purchase amount of farm agricultural products at the level the administration established and that China vacillated on stronger regulations over IP protections and forced tech transfer. Suddenly, Apple shares pulled back over a dollar down, but then recommenced their march back to all “new highs.” Say what?

    The economy is good. Americans have around $90B in their pockets to spend during the holiday season. Apple has a complete new line-up of products and services to offer them.

    Go find where Brother vic is playing his next gig! Tell him: C’est l’amour pour Apple!

    Laissez le bon temps rouler! Geaux . Geaux  Geaux !

    3
    November 13, 2019
  8. victor castroll said:

    Brother Victor Castroll is right here.

    Nice post.

    Tbh, much easier money to be made elsewhere.

    But let’s see

    0
    November 13, 2019

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