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.