Market Overview

BofA: Don't Write Off Apple's Hardware Business Just Yet

Share:
BofA: Don't Write Off Apple's Hardware Business Just Yet

Apple Inc. (NASDAQ: AAPL)'s valuation implies a "declining growth in hardware" moving forward, but this is unwarranted, according to Bank of America Merrill Lynch. 

The Analyst

Bank of America's Wamsi Mohan maintains a Buy rating on Apple's stock with an unchanged $220 price objective. 

The Thesis

Apple's stock is valued under the assumption that the company will see undergo a decline in hardware sales growth, Mohan said in a Tuesday note. (See the analyst's track record here.) 

This thinking is "too pessimistic" and the hardware business has a multiyear growth trajectory driven by growth in the iPhone average selling price in 2018 and 2019, and a potential new iPhone in 2020 with 5G, artificial reality and virtual reality. Sales of other hardware devices — including AirPods, HomePod and Apple Watch — remain strong.

Here is the analyst's sum-of-the-parts valuation based on bull, base and bear cases: 

  • Bull: Hardware business $132 + services business $79 + cash value per share $19 = $230 per share.
  • Base: Hardware business $103 + services business $57 + cash value per share $19 = $179 per share.
  • Bear: Hardware business $82 + services business $40 + cash value per share $19 = $141 per share.

"Given the stock is trading at $168, in our opinion the stock is already discounting a declining hardware business and much worse than run rate services business, which is too pessimistic in our opinion," Mohan said. 

Price Action

Shares of Apple were trading higher by 0.4 percent Wednesday morning.

Related Links:

Oppenheimer Lowers Apple Supplier Estimates On Weak iPhone Projections

Apple Q1 Earnings Preview: What Wall Street Is Saying Ahead Of The Report

Photo courtesy of Apple. 

Latest Ratings for AAPL

DateFirmActionFromTo
Nov 2019MaintainsOverweight
Nov 2019MaintainsOverweight
Nov 2019MaintainsOutperform

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: AirPods Apple Hardware Bank of America HomePodAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga

 

Related Articles (AAPL)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
THCBarclaysMaintains33.0
DVABarclaysMaintains79.0
ARABarclaysMaintains9.0
VRTXCantor FitzgeraldMaintains229.0
HCMCLSAInitiates Coverage On
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Mid-Day Market Update: Cascadian Therapeutics Jumps Following Acquisition News; Bellicum Pharmaceuticals Shares Plunge

Stifel's Bearish Stance On Fitbit No Longer Applies, But Concerns Remain