Bernstein's Sacconaghi: Here's What Apple Investors Are Asking Us

• Apple Inc AAPL shares have lost 22 percent in the last three months and are currently trading close to their 52-week low of $92.
• Bernstein’s Toni Sacconaghi maintained an Outperform rating for the company, with a price target of $135.
• Investors are showing a healthy skepticism related to Apple versus against displaying an unequivocally bullish stance that was visible in the last decade, Sacconaghi stated.

Analyst Toni Sacconaghi mentioned that investors are skeptical about Apple’s growth prospects and have several queries related to iPhone’s replacement cycle, ASPs and margins, the ecosystem and competitors, its services and capital allocation and acquisition.

Investors also wish to know about Apple’s aspirations and appetite for M&A and the company’s ability to draw Android and other platform users onto iOS. “Our net take is that there is a healthy skepticism surrounding Apple today, a departure from the unequivocally bullish view that accompanied the stock for most of the last decade,” Sacconaghi wrote.

The analyst pointed out that more than 80 percent of Apple’s profits are generated from the iPhone business, which remains healthy despite a decline in the unit sales in FY16.

Contrary to the belief that the smartphone market is saturated and Apple will find it difficult to grow units or revenues in the near future, smartphone penetration into the handset market is likely to increase from the current 60 percent to 100 percent over time, Sacconaghi commented.

“Apple has a solid track record of gaining share, as evidenced by strong new-to-iPhone customer numbers over the last 5 years. Moreover, we believe that the large installed base of high-end Samsung phones, as well as Blackberries, provide continued opportunity for share gains,” the Bernstein report noted.

Sacconaghi believes that investors will increasingly look forward to the iPhone 7 cycle, where units and earnings are likely to grow, and that investors “should be building positions now, rather than trying to precisely time an inflection point in the shares.”