BofA cuts Apple target $15 to $200, abandoning market high

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

Key takeaways, implications of our installed base analysis We view the installed base (IB) as a key indicator of the potential of Apple’s ecosystem. The overall IB has grown to over 1.8bn units and fig 5 shows our estimates of the breakdown amongst various devices. The hardware IB is the platform on which Apple builds and grows its services business. We highlight the following:

    1. Size of the global iPhone IB of about 1.1bn units at the end of 2021 (about 760mn primary and 320mn in the used iPhone IB),
    2. The used iPhone IB has been growing faster than the new iPhone IB albeit off a smaller base (2017-21 CAGR of 17% vs. 3%), and we expect the higher growth rate to continue (2021-26 CAGR of 15% vs. 2%),
    3. A larger IB can eventually drive higher consumption of services and sales of incremental devices (halo effect),
    4. The iPhone IB in China has been growing faster than other regions, and we expect that to continue, and
    5. Secondary market growth presents a large services opportunity.

Our IB analysis indicates to us that our prior iPhone estimates may be too conservative and we raise our F23/F24 iPhone units from 231mn/222mn to 237mn/230mn. Reiterate Buy on multiple tailwinds on both hardware and services (user growth, ASP, and increased penetration of IB). PO moves to $200 (from $215) on 30x (from 33x) C23 EPS of $6.64 (from $6.53) (lower multiple on increased macro headwinds, and supply chain headwinds).

Maintains Buy rating, lowers target to $200 from $215.

Below: Mohan's estimates of installed base, by device. (Click to enlarge.)

apple bofa cut 15

My take: BofA Securities held the market-high target on Apple for 112 days. That spot, according to my records, is not jointly held by Evercore's Amit Daryanani and Loop Capital's Ananda Barauh at $210 a share. For those keeping score, that's $72.65 (35%) above Thursday's closing price.


  1. Robert Paul Leitao said:
    The way I read the snippet, there’s multiple compression in the price target revision due to overall market conditions and not deterioration in Apple’s fundamentals. Quite the contrary, actually. Mr. Mohan has increased the firm’s iPhone unit sales projections for FY2023 and FY2024. As he mentions in the note, the greater the size of the installed base, the greater the opportunities for services revenue growth.

    May 20, 2022
  2. Jerry Doyle said:
    @Robert Paul Leitao:

    “…. For those keeping score, that’s $72.65 (35%) above Thursday’s closing price.”

    This is consistent with my comments earlier today (actually yesterday) with you Robert Paul. There are multiple reasons for the current collapse in the markets and what seemingly is a recent acceleration in downward pressure on stock prices across just about all equities. It all evolves around the financial mental state of the consumer. We now are seeing key retailers getting caught with excess inventories even in the midst of uncertainties about all the supply chain issues. Continued rising costs due to inflation are weighing on earnings. Apple is no island in the retail environment where it’s products are viewed essential by consumers so as not to have a negative effect on its stock price going forward. I suspect we will see more of these PT adjustments in the coming weeks and months as we work our way through the Fed’s threats of successive rate increases and the talking heads’ discourses on consumer anxiety over inflation, stagflation and a much discussed recessionary environment.

    May 20, 2022
    • Robert Paul Leitao said:
      Jerry: Target was caught with excess inventory because of over-ordering due to supply chain concerns. Consumers, tapping out the remainder of stimulus savings, are turning more cautious while focusing on essentials. However, BofA is raising its iPhone unit sales estimates. The price target revision, in my view, is because equities now have to compete with bonds and stable value interest-paying instruments such as money market funds for investor dollars. I expect market wide earnings multiple compression as interest rates rise.

      May 20, 2022
  3. Fred Stein said:
    Love the data, especially Mac’s future CAGR. It’s a very sticky sale. In addition, Mac owners, as creators, designers, writers, engineers, videographers, etc. are leaders. They can pay a premium for performance.

    As for PT: Right on RPL and Jerry. Multiple expansion is in reverse for now. Per Finviz, AAPL has a forward P/E of 21. Most likely, Apple’s actual EPS will be slightly higher, for a very safe forward P/E of 20.

    May 20, 2022
    • Robert Paul Leitao said:
      Fred: I’m not concerned about Apple’s trailing earnings multiple. As long as net income keeps rising, the share price will also keep rising. It just takes a little more time for the share price to reach particular targets when the shares trade at a lower multiple. For those playing the “long game,” it really doesn’t matter. Episodes of lower multiples due to rising interest rates create purchase opportunities because interest rates will move up and down over time. In my view, fundamentals matter more than multiples.

      May 20, 2022

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