Bernstein Says Apple's (AAPL) Valuation Remains Attractive Amid Recent Run, But Sees One Possible Near-Term Risk

August 16, 2016 2:59 PM EDT
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Price: $111.94 +0.82%

Rating Summary:
    60 Buy, 10 Hold, 5 Sell

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Bernstein affirms Apple (Nasdaq: AAPL) at Outperform with a price target of $125, and asked whether or not recent momentum in the stock can continue.

Analyst Toni Sacconaghi noted that Apple's valuation remains attractive versus peers, despite the recent run.

Sacconaghi continued, We believe that current quarter (September, FYQ4 16) estimates are achievable, and Apple will benefit from a 14-week quarter in FYQ1, which will likely enable it to hit current December estimates as well, even if the iPhone 7 cycle is muted. Consensus appears to be modeling a 5% decline for iPhones in the September quarter, below normal seasonality, and only 51% seq growth in December (adjusting for the 14 week qtr), lowest in the last five years.

While March quarter and FY 17 estimates may be more aggressive, investors are likely to look past any downward revisions post the December quarter, and focus on the iPhone 7S/8 that will be launched in mid to late 2017, which is expected to be a significant upgrade.

We see the biggest risk to near-term momentum being very weak December guidance (implied iPhone unit growth of 70M or less). This would point to iPhone units for FY17 of only 200M and EPS of around $8, both likely below buyside expectations, and would raise structural concerns beyond simply a weak current iPhone cycle.

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Sanford C. Bernstein, Toni Sacconaghi

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