David Vogt is the first major analyst to price in the "optionality" of an Apple car, which he puts at $14 a share.
From a note to clients that landed on my desktop Wednesday:
No Supercyle? No problem. Valuation + optionality + seasonality = Buy We upgrade Apple to Buy and raise our price target to $142 from $115 to reflect a more stable long-term iPhone demand backdrop with better ASPs and to capture the "real" option value of Apple's likely entry into the auto market that we believe is not reflected in Apple shares. While our analysis of iPhone procurement and mix drives our FY22 estimates higher and our "Core" value to $128 (from $115), our analysis of the auto market and Apple's multi-year investment in the industry (self-driving car licenses and LiDAR patents) suggests to us Apple's auto optionality is worth at least an incremental $14/share. From a timing perspective, our upgrade should also capture the relative and absolute outperformance that typically accrues to Apple shares 180 days prior to fall iPhone launches. Since 2013 (excluding the 2020 COVID distortion), Apple shares have increased 15% compared to 5% for the S&P 500 in the 6-month window leading up to a September launch. By comparison, 6 months post launch, Apple's share price return is a more pedestrian ~7% relative to the S&P 500 return of ~3%.
Raising iPhone units as ecosystem is stable despite underwhelming "Cycle" Based on our analysis of iPhone procurement, upgrade rates and customer retention, specifically outside of China, we believe aggregate iPhone demand in FY21 and FY22 should be relatively stable in-line with historic demand trends. Although a supercycle is unlikely to materialize, we modestly raise our FY21 iPhone estimate by 5M (~2.3%) to 220M reflecting better 5G demand in China. Moreover, the stickiness of the iPhone ecosystem pushes our FY22 estimate 10M higher (~5%) to 215M, in-line with normalized LT demand trends. For context, in the three years prior to FY19, iPhone units averaged ~215M units per year while the global smartphone mkt was flattish.
Upgrades to Buy from Neutral, raises price target to $142 from $115.
My take: I have a feeling the Street was waiting for some big bank to do this. I'm watching to see who else follows suit. Could this be the start of the Q2 21 walkup?
I recall seeing comments on investment boards comparing iPhones to Cabbage Patch Dolls or Beanie Babies. Some people were suspicious that iPhones would just fade away in a year or so. I also recall my manager asking me, just after iPhones came out, “Do you think these can be used in business?”.
I recall the moment I decided to get an iPhone (3G). I was on a business trip with a colleague doing sales visits. We wanted to get some lunch and I was using my Nokia to call information (411 LOL). I was asking for the location of the nearest Panera restaurant. The woman had a thick accent. I kept asking her to repeat what she said when she gave up and hung up on me. I was at Moscone Center when Steve introduced the iPhone so I could see using the Maps to find what we needed without dealing with 411. I never looked back.
Then I discovered everything else it could do.
I stood in line, in the rain, for 4 hours waiting for the ATT Store to open. That was the original iPhone. I’ve still got it and the box it came in. I bought the first three models then settled into a 2 year cycle. This year (September) will be 3 years.
It is irrelevant whether Apple has a “Super Cycle” iPhone sales pattern. I believe many of us were beginning to grasp that irrelevancy. Robert Paul Leitao long has mentioned that it is the “installed base” size that will continue to generate exponentially higher iPhone growth going forward. We have arrived where we will see solid, stable long term iPhone demand.
In summary, the next two years are going to be solid growth years for Apple’s stock price; and, that doesn’t even get us to the Services side of the business.
Wa-a-a-a-a-y too much so.