Apple (AAPL) Investors Should Focus on 2017 FCF - Wells Fargo

Wells Fargo analyst, Maynard Um, is looking through Apple (NASDAQ: AAPL) results over the next 6 months to focus on Free Cash Flow in 2017. Today, shares are trading at a discounted multiple of 2017 FCF that should expand by 30% as the iPhone 7 product cycle approaches.

Implied iPhone units in the low/mid-50M, were significantly better than investors’ expectations in the mid/high-40M units. This level is possible (though not conservative) as it implies 125k units per carrier versus the 5S-cycle that was in the 130k’s.

For the June quarter, iPhone unit projections of 45.2MM are based on a 104k units per/carrier (assuming no new carrier adds) vs 107k in the 5S cycle, is reasonable assuming a new 4” iPhone. There is a little time before the iPhone 7 excitement ramps but the units in the next cycle will be up year over year as non-S cycles typically have higher units per carrier – this expectation is not embedded into the current multiple and there may be a favorable risk/reward with greater upside.

AAPL trades at roughly 9.7x FY16E FCF but only 7.7x FY17 FCF. Its possible for the shares to get to around 10x, which is the basis of the $120-$130 valuation range.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $99.99 yesterday.

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