But many institutions, according to analyst Katy Huberty, remain on the sidelines, leaving Apple more room to run.
From a note to clients that landed on my desktop Tuesday:
Apple institutional ownership increased 31bps Q/Q to 3.0% exiting the September 2019 quarter, while Apple’s weighting in the S&P 500 grew by the same amount (to 3.85%), implying the spread between Apple’s S&P 500 weighting and ownership levels remained constant at ~82bps at September quarter end.
The 31bp Q/Q increase in institutional ownership is the 3rd largely Q/Q increase in the last 6 years and reflects more positive sentiment among investors as it relates to two key catalysts that we believe will play out over the next 12 months.
- First, we expect Services revenue growth to accelerate to +20% Y/Y in FY20 (from +16% Y/Y in FY19) largely driven by the incremental contribution from new services launched earlier this year, such as Apple TV+, Apple Card and Apple Arcade. Services growth accelerated to +18% Y/Y in F4Q19 (from +15% Y/Y in F3Q19), and we believe a continued acceleration in growth will give investors confidence that a greater mix of Services can support gross margins and expand Apple’s multiple over time.
- Second, Apple is expected to launch a new 5G iPhone in September 2020, and given that Apple shares historically begin to outperform 9-12 months ahead of significant iPhone releases (with Apple’s P/E multiple expanding 3-4 turns during this period), investors are positioning long ahead of this catalyst.
At $266, Apple shares continue to hit new 52-week highs, and we expect institutional ownership at year end will reflect an even greater level of share accumulation post-September quarter disclosures. That said, our recent investor discussions suggest many investors remain on the sidelines, leaving room for the stock to run to our $296 PT, which is based on our SoTP analysis on FY21 estimates.
Maintains Overweight rating and $296 price target.
Click to enlarge.
My take: Huberty is one of the good ones.