Oppenheimer Cuts Apple Price Target 22%, Still Likes Stock Long-Term

• Shares of Apple Inc. AAPL have declined 13 percent over the past one month, down to a low of $96.45 on January 7.
• Oppenheimer’s Andrew Uerkwitz has maintained an Outperform rating on the company, while lowering the price target from $155 to $120.
• Uerkwitz believes that Apple remains the best positioned, even in the long term, to outgrow the high-end smartphone market, driven by superior user experience.

Analyst Andrew Uerkwitz mentioned that the company to generate free cash flow of $10 and net cash of $25 per share in FY16, while adding that expectations of the “smartphone market becoming the PC/notebook market” is occurring more quickly than expected.

This means that the smartphone market is not expected to see easy year on year growth any longer, while “investors will have to accept Apple's transition to a recurring revenue-based model, which may be hard to swallow for some Apple investors.”

Uerkwitz went on to explain that in his thesis was correct, the clearest sign would be that China sales would continue to be robust and that weakness would come from Europe and North America. On the other hand, if the problem had been related to the product cycle, the weakness would have been observed across all regions.

“While we are concerned in the near term, some investors may keep critical focus on the potential long-term degradation of Apple's hardware business,” Uerkwitz said, adding that given the increased volatility and headwinds in 2016 in the technology sector, “cash-generating, dividend paying, attractively valued stocks like Apple” were preferred.

The revenue and EPS estimates for FY16 and FY17 have been lowered to reflect lower expectations of iPhone shipments in both years. The iPad shipment estimates for FY16 and FY17 have also been lowered to reflect emerging market headwinds and elongated replacement cycles.