Merrill Lynch: Seven reasons Apple broke $352

Just before the stock got clobbered Thursday and fell below $336, analyst Wamsi Mohan raised his price target to $390 from $350. Here’s why…

From a note to clients by analyst Wamsi Mohan that landed on my desktop Thursday:

Shares of Apple hit a new all-time high at yesterday’s closing price of $352.84. We see several drivers that explain this move

    1. Heading into a product cycle (5G iPhones) the multiple typically expands,
    2. Product (Hardware) revenues largely thought to be ex- growth will grow 20% next year from iPhone and wearables,
    3. Other large cap tech companies carry more risks of regulation or compares get tougher in some instances vs. easy compares for AAPL next year,
    4. Stability of cash flows demands a higher multiple (proven to be resilient through covid-19),
    5. Gross margins benefit from continued insourcing and services mix (somewhat offset by content amortization and higher bill of materials for 5G),
    6. High level of investment preceding new product categories (Augmented Reality Glasses, healthcare, autonomous efforts etc.) and
    7. Market multiple has expanded by 2x turns from pre-covid levels.

Maintains Buy rating, raises price target to (Street-high) $390 from $350.

My take: Seem like good reasons to me. Too bad Mr. Market had other things on his mind.

See also: Merrill Lynch revs Apple target up $50 to Street-high $390

2 Comments

  1. Dan Scropos said:
    I would only have added the value of the installed base and the iPhone SE.

    The installed base represents the most valuable corporate/customer relationship in the history of mankind, and Apple has cultivated this relationship in a way that exudes loyalty.

    Apple has also, for the first time, entered the mid tier smartphone category with an all new phone. In the past, that was relegated to legacy models with downstream pricing. This will present tremendous headwinds for competitors. This now gives Android defectors a valid reason to enter the world’s greatest tech ecosystem.

    2
    June 11, 2020

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