Meanwhile, she’s convinced that the Street’s Services forecasts for this year and the next are too low.
From a note to Morgan Stanley’s clients that landed on my desktop Tuesday:
Services strength drives estimates higher but peer multiple compression drives PT lower to $155 (from $164). Following strong March quarter App Store results and an analysis of the key drivers of Apple’s Licensing & Other segment, we raise our already above-street FY21 and FY22 Services revenue estimates by 3% and 5% respectively, and are increasingly convinced that consensus Services forecasts over the next 2+ years are too low.
We now forecast Apple Services revenue growth accelerates by 6 points to +22% Y/Y in FY21, up from +19% Y/Y previously, nearly 4 points ahead of FY21 consensus Services growth of +18% Y/Y.
Keeping the rest of our Product-related estimates unchanged, our stronger Services forecast pushes our FY21 and FY22 total revenue estimates 1% higher, and our FY21 and FY22 EPS 1% and 3% higher, respectively.
However, multiple compression over the last 2 months, primarily at Apple’s higher growth Services peers, more than offsets our higher revenue and earnings estimates, driving our new sum-of-the-parts based price target to $156, or 33x FY22 EPS, down from $164 previously.
AAPL shares have underperformed the S&P by 20 points since reporting F1Q earnings (Apple shares are down 13%; the S&P 500 is up 7%) but we believe positive earnings revisions into what we expect to be a strong F2Q earnings report later this month will drive a return to outperformance, keeping us Overweight.
Maintains Overweight rating, lowers price target to $155 [note: $156 in the headline, $155 in the text] from $164.
My take: A mixed bag, but on balance a positive note.
Cue Exhibit 4:
With AAPL trading about 20% below average PT, it’s a steal.
I can wait for rationality to return.
It is easy for patient investors who understand Apple to exploit the market’s inefficiency w.r.t. AAPL.
This year’s prints have been anything but traditional, but because the July 4 week has been so consistent I expect it to remain so. AAPL, post July 4, rises an average of 24% by January earnings.
With the December quarter 2020 bubble thoroughly popped I’m expecting strong AAPL performance from here through FY22.
I definitely hope my “charity” shares will be north of $130 when I gift them. I feel confident that they will be, but I don’t know how far north.
It’s all about EPS and RPS growth, folks. A lot of investors don’t have a clue – and aren’t being clued in.
Gee, I wonder why not….