Apple, Inc. (NASDAQ: AAPL)
Shares on AAPL have been under pressure recently after its break down through its ascending channel, shown in the chart below, to then be accelerated by its latest earnings report. APPL currently is trading off its near term lows of $90 now hovering just below $100. AAPL offers a tempting risk reward scenario technically if it can reclaim the psychological level of $100 and hold.
Analysts at UBS securities offered the following break down on APPL as of late.
DCF Scenario Analysis Suggests Limited Downside
with Significant Upside Requiring Hardware Hits What is Apple worth?
Apple expert Horace Dediu recent told us, “As Apple is priced today, its assuming the
ecosystem will erode because we cannot justify the 800mn users paying $300 a year
continuing in perpetuity. The current price assumes either the $300 goes to $30 or the
number of users goes from 800mn to 200mn in a few years.” To test this, we ran a
DCF model on six Apple scenarios, from very bearish to quite bullish. We found
significant downside only in a BlackBerry situation in which iPhone units fall
precipitously. The stock appears about fairly valued on weak future iPhone sales.
However, if new products are 25-50% as successful as the iPhone, a high bar, we
estimate there is upside to $130-160. Limited downside barring an iPhone meltdown
Investors currently seem to be pricing in flat to down iPhone sales and moderate
support from services revenue, which appears reasonable over the near term. Our most
bearish case is a Blackberry-like fall from grace, putting the stock around $70. If iPhone
goes the way of the PC at 5-10% annual declines, the stock could be worth about
today’s price. Given the size of the iPhone and historical difficulty in maintaining
hardware margins, this is a reasonable possibility though probably too negative.
Upside potential mostly depends on substantial hardware hits
Significant upside requires either outstanding services growth, which we think
ultimately depends on hardware, or new product hits. Scenario 4 assumes new
hardware product(s) with success equal to about 25% of iPhone revenue, resulting in a
stock price of $130-150. Scenario 5 assumes products equal to 50% of iPhone
revenue, likely reflecting a big win in virtual reality, which could take the stock to $140-
165. Scenario 6 is scenario 4 plus a successful Apple Car, which could support $170-
195 per share. Valuation: Stock range bound near-term; keeping target of $115
The stock likely is range bound for now with low multiples acting as downside support
and lack of demand catalysts an upper ceiling. If estimates continue to decline, it will be
hard for the stock to muster more than a bounce for now. Increasingly F18 looks like
the catalyst for more substantial appreciation. Our target of $115 is 13x F17e EPS.
About Apple, Inc.
Apple Inc. (Apple), incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players and sells a variety of related software, services, peripherals, networking solutions and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud and a variety of accessory, service and support offerings. The Company offers a range of mobile communication and media devices, personal computing products and portable digital music players, as well as a variety of related software, services, peripherals, networking solutions and third-party hardware and software products. In addition, the Company offers its own software products, including iOS, the Company’s mobile operating system; OS X, the Company’s Mac operating system; and server and application software. The Company’s primary products include iPhone, iPad, Mac, iPod, iTunes, Mac App Store, iCloud, Operating System Software, Application Software and Other Application Software. – Reuters