The initial market reaction to Apple Inc. AAPL’s Q4 earnings report is a negative one, but Wells Fargo analyst Maynard Um believes the stock is set up well for the long term.
As the market for the iPhone becomes more saturated, fears that sales have peaked have spooked investors for months. However, Um believes that those fears are unfounded.
“We believe that the risk/reward at 8x our FCF is tilted favorably with investor sentiment likely reflecting potential H1 softness and our view that iPhone shipments have not peaked and would increase yr/yr in Dec 2016,” he explained.
Following Apple’s new earnings and guidance, Wells Fargo believes Apple’s stock is valued in the $120 to $130 range based on 10x the firm’s 2017 FCF projections. Um noted that global economic uncertainties, China exposure, product missteps, potential legal costs and unexpected margin pressures are all threats to this valuation.
Wells Fargo has maintained an Outperform rating on Apple.
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