Needham raises Apple price target to Street-high $350

Analyst Laura Martin calls Apple “a pure play on the trend to always-on mobility.”

From a note to clients that landed on my desktop Monday:

AAPL was our Conviction List pick in 2019, and is again in 2020, because:

1) AAPL has direct relationships with 900mm of the wealthiest consumers in the world;
2) AAPL is transitioning to a recurring-revenue business model, which is driving multiple expansion;
3) AAPL is indifferent to which apps are most popular on its platform (ie, it’s an arms dealer);
4) AAPL is a gatekeeper, so it can require rev shares from all apps;
4) AAPL is a pure play on the trend toward “always-on” mobility;
5) AAPL’s compensation structure is a hidden asset that drives valuation upside; and,
6) AAPL benefits from Network Effects.

Owing to significant outperformance in 2019 (up 84% vs S&P500 up 28%), AAPL’s stock surpassed our price target, so we downgrade our rating to Buy from Strong Buy.

Downgrades rating to Buy from Strong Buy, raises price target to $350 from $280.

My take: This is a smart note, despite the odd downgrade and the extra No. 4. I’ll quote just a couple of the points Martin fleshes-out under the rubric “WHAT WE’RE SAYING THAT’S DIFFERENT FROM OTHERS.”

3. Sequels Lower Risk. We view AAPL’s annual September iPhone releases as sequels in a successful film franchise. Investment risks are lower owing to an installed base of iPhone super- fans who will replace their iPhones, plus hit products retain all upside economics.

5. Wealthy Consumers. Consumers are creating an always-on connected network via smartphones and, owing to its premium pricing, AAPL is a gatekeeper to 900mm of the wealthiest consumers who represent about 12% of the total global population. AAPL is also a pure-play on the consumer trend toward mobility and out-of-home.

See also: Wedbush sets new Street-high Apple price target: $350

3 Comments

  1. David Emery said:
    “Owing to significant outperformance in 2019 (up 84% vs S&P500 up 28%), AAPL’s stock surpassed our price target, so we downgrade our rating to Buy from Strong Buy.”

    The -implication- is that “Apple can’t do it again.” I, for one, would have expected some actual analysis behind that recommendation. But if there’s one thing Apple has shown, it has an ability to well outperform ANALyst expectations.

    3
    January 6, 2020
  2. John Butt said:
    I believe that while she got close to a key concept she didn’t quite make it. Apple is creating aN encompassing social network of family and friends with multiple communication methods combined with a strong reason to stay in the “family” by repeat buying an iPhone.

    An interesting story; I used to run an ISP network when google first allowed imports of addresses to make a picture. We imported our entire address list to see what it looked like and immediately discovered very tight physical groupings of customers, like bubbles in various suburbs. More research discovered these were neighbours and friends of “experts” who advised people which ISP they thought was best. Apple has created a very similar dynamic, all my family, neighbours and friends ask me which isp, which computer and which phone, they don’t always follow, but most do. Especially when I say I cannot provide help with android or PCs. This is the power of the Apple solution.

    5
    January 6, 2020
  3. Fred Stein said:
    Take $350 target and not worry about Buy vs Strong Buy. Good analysis by Martin on the customer ecosystem strength.

    As for “premium” and “wealthiest” – ugh. Get over it. Apple’s prices are fair. Apple’s GM is just average, and well below the GMs of true luxury and premium brands that cater to the wealthy. Apple’s SmartPhone and LapTop prices are in line with their competitors. The only time Apple’s prices appear high is when competitors have fire sale prices.

    Like most analysts, Martin does quite see Apple’s supply chain ecosystem. They have the world’s best foundry, the cleanest (environmentally and socially) suppliers, and they scale up miraculously with new models each year. Now these new models include iPhones, Apple Watches, and AirPods. Because Apple delivers consistently it seem ordinary. It’s extraordinary. Analysts just don’t ‘get it’.

    5
    January 6, 2020

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