Wells Fargo Upgrades Apple (AAPL) to Overweight; Think 12-24 Months Ahead

(Updated - March 13, 2020 6:42 AM EDT)

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Wells Fargo analyst Aaron Rakers upgraded Apple (NASDAQ: AAPL) from Equal Weight to Overweight with a price target of $315.00.

The analyst comments "Put simply, over the next 12-24 months (i.e., valuation based on C2022 est.) we think Apple can drive EPS back to $15/sh.+ (we now model C2022 EPS at $15.87/sh.) and sustain +$40B/annum FCF. Key tenants of our upgrade include: 1) While we would consider the current concern / fear over the fundamental impact from COVID-19 as understandable (more so demand vs. supply-chain at this point), we subscribe to the belief that this will eventually ease / recover. From a supply perspective, we continue to see net-positive indications from China – e.g., Foxconn (Hon-Hai) reporting ramping labor capacity resumption faster-than-expected a week ago. 2) Apple’s recurring services growth / contributions should continue to support sustainably higher valuation multiples (18-20x P/E and EV/EBIT – reminder: Apple’s results are full GAAP, including stock-comp). 3) Apple’s significant cash position and consistent FCF (we still model +$40B/annum) provides significant capital return flexibility; ability to accelerate the progression to a Net Cash Neutral position (vs. net cash at $98.8B exiting F1Q20). Apple is to provide its annual capital return update in late-April (see table on pg. 4). 4) A positive 5G smartphone upgrade cycle is a when vs. if. 5) Apple’s expanding Wearables, Home, & Accessories category represent a strong incremental growth driver and, more importantly, further expands Apple’s brand / iOS ecosystem loyalty. 6) Apple is still relatively under-owned."

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 $241.53 yesterday.

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