Cowen Affirms Apple (AAPL) at 'Outperform'; Sees $135 PT as 'Conservative' Given Expected Multiples
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Cowen and Company affirms Apple (Nasdaq: AAPL) at Outperform with a price target of $135 following Q4 results and outlook issued Tuesday night.
The firm commented on Wednesday:
While there could be some minor hand wringing over GMs, AAPL is tightly managing supply but still nicely threaded the needle on guidance. From here, investors can now really start to focus on iPhone 10 being the flame in C2017 that lights the "powder keg" that is forming in the installed base. Target remains $135, but even this is very conservative given our estimates and comp multiples.
With CQ4 guidance now on the tape, this might be the last time investors really care about iPhone 7/7+ and it can be said to have "done its job" as a bridge to get to the super-cycle in 2017 for the iPhone 10. There is a lot of focus on upgrade rates, but this is largely driven by mix and age of the base; to that end, things are playing out consistent with our work implying there will be ~80 million MORE units that are >2yrs old in September '17 than there are today. Given a very high upgrade rate in this segment of the base and no replacement product for iPhone other than iPhone, this forms a "powder keg" that has built under the surface with a new OLED-enabled design being the flame to light the fuse. Our supply chain work continues to suggest ~100 million OLED screens coming from Samsung - enough to supply ALL of the new phones in the Fall (AAPL is selling ~80 million 7/7+ in C2016), depending on the final design configuration. We think this grows to ~300 million in C2018 suggesting the entire iPhone line and enough capacity for other products too maybe even a VR-related headset. This forms the basis for our view that iPhone units snap back to ~230 million in C2017 with EPS ~$10.26 - or nearly a full $1 ABOVE Street and a gap that expands even further in C2018. Even given recent strength, we would be buyers with a $135 target that could easily be ~$145-150 based on a scenarios with current comparable multiples and AAPL's historic discount to such peers.
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