UBS Lowers Numbers on Apple (AAPL); Sees Stock Range Bound

UBS analyst Steven Milunovich trimmed his price target on Apple (NASDAQ: AAPL) to $115.00 (from $120.00) and is reducing estimates on more cautious phone growth.

"We have revamped our iPhone forecast model, the heart of which is our installed base model," Milunovich commented. "Upgrades to the iPhone 6 have been disappointing with an apparent lengthening of the upgrade cycle due to changing carrier plans and less feature differentiation. Our installed base analysis reflects that the iPhone 6 was unusually well received as perhaps 37% of the installed base entering F15 purchased a new iPhone. The ramification is being felt in F16 with a much lower 25% upgrade rate expected. Our base case for F17 is total iPhone unit growth of 4% to 217mn based on a 23% upgrade rate and a decline in new customers. Consequently, we have slightly reduced our EPS estimates to $8.20 in F16 and $9.30 in F17."

Milunovich also thinks iPhone sales to new users will moderate.

"Although upgrades drive our model, sales to first-time Apple customers are important," he commented. "These units were a plug looking back, but going forward we need to estimate new users. Again, there are a few clues, such as half of sales in China have been to new customers. Given the sudden weakness in China and immaturity of India, we assume declines in sales to new users the next few years."

The analyst says the stock likely is range bound for now with low multiples acting as downside support and lack of demand catalysts an upper ceiling. He said there might be a trade on the iPhone 7 cycle, but more dramatic moves may be required for substantial appreciation.

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 $93.42 yesterday.

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