Apple Inc (NASDAQ:AAPL)
Shares on AAPL have been under pressure recently after its break down through its ascending channel, shown in the chart below, to then be accelerated by its latest earnings report. APPL currently is trading off its near term lows of $90 now hovering just below $100. AAPL offers a tempting risk reward scenario technically if it can reclaim the psychological level of $100 and hold.
Analyst Expectations
Analysts at UBS securities offered the following break down on APPL as of late.
DCF Scenario Analysis Suggests Limited Downside
ith Significant Upside Requiring Hardware Hits What is Apple worth?
Apple expert Horace Dediu recent told us, “As Apple is priced today, its assuming the ecosystem will erode because we cannot justify the 800mn users paying $300 a year continuing in perpetuity. The current price assumes either the $300 goes to $30 or the number of users goes from 800mn to 200mn in a few years.” To test this, we ran a DCF model on six Apple scenarios, from very bearish to quite bullish. We found significant downside only in a BlackBerry situation in which iPhone units fall precipitously. The stock appears about fairly valued on weak future iPhone sales.
However, if new products are 25-50% as successful as the iPhone, a high bar, we estimate there is upside to $130-160. Limited downside barring an iPhone meltdown Investors currently seem to be pricing in flat to down iPhone sales and moderate support from services revenue, which appears reasonable over the near term. Our most bearish case is a Blackberry-like fall from grace, putting the stock around $70. If iPhone goes the way of the PC at 5-10% annual declines, the stock could be worth about today’s price. Given the size of the iPhone and historical difficulty in maintaining hardware margins, this is a reasonable possibility though probably too negative.
Upside potential mostly depends on substantial hardware hits Significant upside requires either outstanding services growth, which we think ultimately depends on hardware, or new product hits. Scenario 4 assumes new hardware product(s) with success equal to about 25% of iPhone revenue, resulting in a stock price of $130-150. Scenario 5 assumes products equal to 50% of iPhone revenue, likely reflecting a big win in virtual reality, which could take the stock to $140- 165. Scenario 6 is scenario 4 plus a successful Apple Car, which could support $170- 195 per share. Valuation: Stock range bound near-term; keeping target of $115 The stock likely is range bound for now with low multiples acting as downside support and lack of demand catalysts an upper ceiling. If estimates continue to decline, it will be hard for the stock to muster more than a bounce for now. Increasingly F18 looks like the catalyst for more substantial appreciation. Our target of $115 is 13x F17e EPS.
About Apple, Inc.
Apple Inc (NASDAQ:AAPL). (Apple), incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players and sells a variety of related software, services, peripherals, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud and a variety of accessory, service and support offerings.
The Company offers a range of mobile communication and media devices, personal computing products and portable digital music players, as well as a variety of related software, services, peripherals, networking solutions and third-party hardware and software products. In addition, the Company offers its own software products, including iOS, the Company’s mobile operating system; OS X, the Company’s Mac operating system; and server and application software. The Company’s primary products include iPhone, iPad, Mac, iPod, iTunes, Mac App Store, iCloud, Operating System Software, Application Software and Other Application Software.