Evercore raises Apple price target $15 to $345

In a 33-page deep dive into Apple’s subscription services, analyst Amit Daryanani estimates that average revenue per user is now growing nearly 20% per year.

From a note to clients that landed on my desktop Thursday morning:

All You Need to Know: In this report, we provide a detailed analysis of AAPL’s services business with a focus on NEW GROWTH VECTORS. We think the potential for new offerings to be an accelerant to services growth remains underappreciated as upside to growth (vs. 20% bogey) will come from – New offerings + ARPU and not install base. Over the last 5-years, Apple’s services business has sustained ~20% CAGR creating a sizable base of high-margin, recurring revenue. Growth over the last 5-years was driven by install base growth (11% 5-year CAGR) with limited contribution from incremental monetization and/or new initiatives. Apple has announced numerous services offerings in the past year (Card, TV+, Arcade), which should drive higher ARPU and keep services growth elevated. Higher services mix should push gross margins higher and help smooth cyclicality. In addition, Apple continues to build its base of subscription services, which helps make the case for a higher multiple given the recurring nature of the cash flows.

Net/net: Services remains an underappreciated growth lever especially given the shift in growth towards monetization and subscription based model. We see healthcare, cloud and advertisements as driving the next leg-up for growth.

Maintains Outperform rating and raising target to $345 from $330.

One of the report’s 35 charts and graphs:

apple evercore services deep dive

14 Comments

  1. Gregg Thurman said:
    Given the above reasoning, $345 is a very conservative one year price target, given that AAPL is currently only about $10 off its all time high (~$327).

    My guess: in reality this is a 3 month target.

    4
    May 21, 2020
    • Bart Yee said:
      Agree, Amit moves his target 4.5%-5% at a time. Visibility after the next earnings report will cause another 5% jump to $360, already hitting my conservative April 1, 2020 target likely by early August – End of Sept. 2020. Of course, a lot will depend on iPhone 12 production and introduction plus any potential Covid resurgence or 2nd wave.

      1
      May 21, 2020
    • John Konopka said:
      I don’t disagree, but I’m concerned that this pricing is getting ahead of itself. AAPL already has a P/E of 25. To get to $345 without an earnings increase would push it up to ~27. Maybe this is an extension of setting a new normal for the AAPL P/E? If this quarter comes in a little weak that could slow things down. I don’t doubt that Apple will eventually show some good growth ( good execution plus new products and services ). Maybe the market is looking farther ahead past this next quarter or two? Maybe it is a combination of flight to safety and Apple buybacks reducing the share count?

      0
      May 21, 2020
      • Gregg Thurman said:
        John you’re thinking the next, maybe two, earnings reports.

        WS buys 9 to 12 months before an anticipated inflection point with the intention of holding for 5 years, only selling if their thesis doesn’t pan out.

        WS has been loading up on AAPL for the last 4 to 5 weeks, so much so that the percentage institutional ownership of AAPL has risen dramatically.

        I think you’re going to find that AAPL will achieve the higher end of pre COVID-19 targets by this time 2021.

        My best time to buy AAPL chart:

        1. The best time to have bought AAPL was yesterday.
        2. If you missed buying yesterday then buy today.
        3. Missing those two entry points you can always buy tomorrow.

        3
        May 21, 2020
  2. Jerry Doyle said:
    “…. Net/net: Services remains an under-appreciated growth lever especially given the shift in growth towards monetization and subscription based model. We see healthcare, cloud and advertisements as driving the next leg-up for growth.”

    In all due respect to Mr. Amit Daryanani’s Net/Net observation above, it is as if he had an epiphany. Where has he been? PED’s group of commenters long have been making this observation and analysts now seem to be coming around to its discovery. If this is a three month target price then the good analyst will almost reach my $400 price target by April 1, 2021.

    0
    May 21, 2020
  3. Fred Stein said:
    Amit plays to a wider audience, specifically TV. It seems to be working for him. Hats off. He doesn’t get too far ahead (in ideas, or PTs) of his audience. He will raise his PT around the time of next earnings, when his wider audience is ready.

    He does bring up health as a long term growth catalyst. Excellent.

    0
    May 21, 2020
  4. Peter Kropf said:
    And we are trading in a Federalized ‘Market’ where the Fed and Treasury are buying debt and equity to ensure the market continues its bull run. The prices of the trillion $ stocks at the top are all being protected by Uncle Sam.

    2
    May 21, 2020
    • David Emery said:
      “The prices of the trillion $ stocks at the top are all being protected by Uncle Sam.”

      Could you explain this? I can see how markets in general are being propped up by the Fed, but I don’t understand how the “trillion $ stocks” are special beneficiaries.

      0
      May 21, 2020
    • Gregg Thurman said:
      The prices of the trillion $ stocks at the top are all being protected by Uncle Sam.

      “Uncle Sam” (haven’t heard that descriptor in a while) has been propping up the economy and in so doing has propped market valuations.

      “Uncle Sam’s” first priority is the economy, everything else’ rides on those coattails. .

      0
      May 21, 2020
  5. Miguel Ancira said:
    I agree that we might be getting a little ahead of ourselves, but if we look at long term, we are only just beginning to climb. We have not even begun to see what Cook has been saying will be his legacy, which is health care. How do we reconcile what he has been saying with the short term view that 90% of these analysts take?

    2
    May 21, 2020
    • Fred Stein said:
      Agree strongly re health. It’s amazing that so few analysts mention this, especially since Tim Cook never engages in idle boasts.

      2
      May 21, 2020
  6. Rodney Avilla said:
    “T-Mobile and Sprint Offering Free iPhone SE With Trade-In”

    this could have a significant affect on the next 2 quarter reports. I am assuming that T-Mobile and Sprint are absorbing the cost and sending the profit to Apple. As Apple’s services continue an incredibly strong growth pattern, increasing the installed base (I am assuming that most of the takers of this offer will not be previous iPhone 10 or 11 owners) should only help in that regard. I believe this price increase is very conservative.

    1
    May 21, 2020

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