Phillip Capital: Apple's Evolution As A Service Company Will Expand Multiples

• Shares of Apple Inc. AAPL have appreciated 3.45 percent over the past five days, although they declined 19.69 percent over the last six months.
• Phillip Capital analysts have maintained a Positive rating on the company.
• The analysts believe that the current stock valuation offers an opportunity to take advantage of Apple’s potential for future growth, as the company transitions more into a service company.

According to the Phillip Capital report, as Apple “transitions itself more and more into a service company, this could expand AAPL’s earnings multiple as well as increase AAPL’s average revenue per user.”

The comparted mixed results for 1QFY16, with EPS ahead of the consensus and revenue and iPhone unit sales below the consensus. However, the company’s provided light 2Q guidance, attributing it to FX headwinds and difficult macroeconomic conditions in its core markets.

Although the analysts expect the share price to experience pressure in the short term due to the “continuing of the perfect market storm,” in the longer term, Apple is expected to benefited from its robust established user base and balance sheet.

Apple reported that across its devices, 1 billion devices were in active use with Apple services over the past 90 days, while the installed base drove related purchases worth more than $31.2 billion for FY15, with a 24 percent year on year increase for 1QFY16.

iPhone sales were, however, flat year on year, with no growth in units sold and only a 1 percent rise in revenue, which the analysts believe raises concern regarding iPhone saturation in the market. iPad sales declined 25 percent year on year, while Mac units fell 4 percent year on year.

For 2QFY16, the company has guided to revenue of $50-$53 billion, with gross margin of 39.0-39.5 percent, operating expenses of $6.0-$6.1 billion and other income/expense of $325 million.