UBS upgrades Apple from Neutral to Buy, raises target $27 to $142

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?

8 Comments

  1. David Emery said:
    I always wonder how many units would constitute a “whelming super-cycle” 🙂

    5
    March 31, 2021
  2. John Konopka said:
    Curious how iPhones are considered. Now, iPhones and iPads have become so sophisticated and the range of apps available is so broad that they are considered indispensable by many. I think we are finally past the point of iPhones being considered a fad or a non-necessary luxury item.

    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.

    3
    March 31, 2021
    • Gregg Thurman said:
      My decision to buy an iPhone was based entirely on the numerical keypad. It was large enough to accommodate my large hands. No longer would I be redialing because my fingers hit the wrong key.

      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.

      3
      March 31, 2021
    • Hugh Lovell said:
      I was working for Apple Retail when the iPhone came out. We’d endured six months of customer’s anticipatory questions following the initial announcement. Launch day, where we closed and reset the stores mid-day and re-opened for sales, was insane, and was the first time any of us had actually handled the device. Best news was that all employees who had worked over a year got a free iPhone. Unfortunately, it wasn’t completely free for me because I had to dump my Sprint contract in order to sign up with AT&T. But I’m glad I did. After having the iPhone for 24 hours, I knew I would never go anywhere without it.

      4
      March 31, 2021
    • Rodney Avilla said:
      I recall my 1st iphone. A passenger in a car, I pulled it out and looked up Mac Rumors. That day, In my mind, the iphone went from a phone that does internet, to a computer that can make calls. I never looked back.

      3
      March 31, 2021
  3. Jerry Doyle said:
    Perhaps this UBS upgrade is what we have been waiting for the next catalyst to drive Apple stock price higher. We knew such a catalyst would come. Just what & when is all we needed. Apple is going to come forth with a car. Apple knows fully it must compete in the transportation sector to grow the company and to retain its technological prowess. So, Apple is going to definitely be a “major player” in the auto space.

    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.

    2
    March 31, 2021
  4. Gregg Thurman said:
    What a difference a change in analyst makes.

    1
    March 31, 2021
    • Kirk DeBernardi said:
      @ Gregg Thurman —

      Wa-a-a-a-a-y too much so.

      1
      March 31, 2021

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