Bernstein Ponders The Future Of Apple, Wonders If Co Has Any Fight Left In it

The Apple Inc. AAPL stock seems to be “an attractive revaluation candidate,” as it reflects “overly pessimistic mid-single-digit declines in FCF in perpetuity,” Bernstein’s Toni Sacconaghi said in a report. He maintained an Outperform rating on the company, with a price target of $125.

Apple’s revenues are expected to decline by 8 percent in FY16, mainly due to softening iPhone sales. iPhone unit sales are likely to grow in FY17 and FY18, with an expansion in the installed base and stabilization of upgrade rates. If this is the case, then Apple’s stock appears inexpensive at current levels, analyst Toni Sacconaghi mentioned.

Longer Term Prospects

While the iPhone has been driving Apple’s profits, this “invariably will decline over time, as replacement cycles elongate and ASPs fall,” Sacconaghi commented. He added, however, that if iPhones unit sales grow in FY17 and FY18, it would give Apple time to launch new offerings.

In the longer-term, Apple's performance would depend on significant and new product innovation. “While wary on Services, we see sizable potential for the Watch evolving to become a health-monitoring device, for an Apple Car, and for Apple to migrate its business model to be subscription-based,” the analyst wrote.

Noting that Apple’s stock is currently inexpensive, both relative to its history and tech peers, Sacconaghi noted that the stock is “even more attractive than meets the eye,” given the company's accounting choices and high quality FCF.

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