Apple Shares Rallying Since Q2 Beat; UBS Sees Return To Sales Growth In 2017

Despite market fears about the implications of peaking iPhone sales, UBS believes that Apple Inc. AAPL’s downside is limited in the near term and the stock could re-gain positive momentum headed into 2017. Analyst Steven Milunovich predicts Apple’s June quarter profit decline was likely as bad as it’s going to get for the company for a while.

“The June quarter’s 23 percent earnings decline should be the worst to be followed in our model by a Sep decline of 17 percent, a Dec decline of 2 percent, and then increases as comparisons ease,” Milunovich explained.

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At Apple’s current share price, 84 percent of the stock’s value is derived from its current earnings, and only about 5 percent of its value comes from projected earnings more than three years in the future. Milunovich believes the market is pricing in an overly negative long-term outlook for Apple.

In the near term, UBS sees little downside to Apple given its low valuation. However, Milunovich notes that the share price may not re-gain its upward momentum until sales growth crosses back over into positive territory in 2017.

UBS maintains a Buy rating on Apple and a $115 price target. The firm’s price target is based on 13x fiscal 2017 EPS estimates, in line with the multiples of large computer vendors.

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Disclosure: The author holds no position in the stocks mentioned.