Bernstein's Sacconaghi Discusses Bull, Bear and His View on Apple (AAPL) Following Romp

Bernstein analyst Toni Sacconaghi offered his latest thoughts on Apple (NASDAQ: AAPL) following the romp in the stock following weak earnings, guidance and a disclosure from Carl Ichan that he exited the stock, citing citing worries about China.

Sacconaghi discussed the bull and bears views on the stock following spending three days on the phone with investors following the results.

BEAR CASE: In general, sentiment among buysiders is incrementally negative – investors believe Apple has lost its marketplace "mojo", management's inconsistent messages are increasingly worrisome, product innovation is too slow, Apple's China run is over, and - most importantly – that iPhone profits have likely peaked, with declining margins and ASPs inevitable, akin to the iPad and PC marketplace.

BULL CASE: The iPhone is still healthy and will grow; iPhone cycle replacement rates have elongated this year, but will flatten or accelerate for the iPhone 7 (and/or for 2017 OLED offering) leading to further growth; Services growth and margins will buoy any pressure in iPhone margins going forward; and investor sentiment is deeply skeptical, resulting in limited downside and very favorable risk-reward.

On net, Sacconaghi said while they believe that Apple will be challenged to grow earnings longer term, they do believe that the iPhone business is still healthy today, and that accordion-like replacement cycles between full refresh and S-cycles explains the majority of the YoY contraction we are seeing this year.

"With the stock trading at trough valuation levels, we continue to see risk-reward as attractive at current levels," he said.

The firm reiterated an Outperform rating and price target of $135.

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 $93.74 yesterday.

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