Goldman Sachs Keeps Top Rating on Apple (AAPL) Highlighting Massive 1B Installed Base

Goldman Sachs analyst Simona Jankowski reiterated a Conviction Buy List rating and $155 price target on Apple (NASDAQ: AAPL) following results after the close. The analyst views the guidance as better than feared and highlights that the installed base is up 25% year-over-year.

Jankowski said they remain buyers of the stock with two key takeaways:

1) March qtr iPhone units were implied at 52mn or better, above buyside expectations in the high 40s. Beyond the tough comps, Apple attributed the yoy decline (-11% at the revenue guidance midpoint, incl. 400bps of FX headwinds) to “extreme conditions unlike anything we have experienced before,” citing weaker economic growth and currencies in Russia, Japan, Canada, Southeast Asia, Australia, Turkey & the Eurozone. Apple noted that comps get easier after the March qtr; we model June qtr revenues up 2% yoy, after a 6% yoy decline in the March qtr and we reiterate our view that the trough yoy growth quarter should be bought.

2) For the first time, Apple disclosed that its installed base of active devices recently crossed the 1bn mark, up more than 25% yoy, with gross service sales (including iTunes, Music, apps, etc.) up 24% yoy. As laid out in our Apple-as-a-Service report published November 18, 2015, we believe the market is substantially under-valuing Apple’s recurring revenues (both services and hardware). If we were to apply a 15-20X P/E to Apple’s services business, it would imply $150-200bn in market cap. With $153bn in net cash, this implies Apple’s hardware business is valued at a 4-5X P/E and 0.9-1.1X P/S multiple, both of which we view as very attractive.

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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