Apple Has More Fuel in the Tank, Says Merrill Lynch Analyst


All-time highs are all the rage in 2019. Leading the pack, is the world’s most valuable company, Apple (AAPL). The tech giant’s share price added further muscle by closing December 17’s session at a new record high of $280.41 per share.

The latest nudge upward came following news of the most recent détente between the US and China. On Friday, the two squabbling super-powers agreed to a phase-one trade deal, which included some relief from tariffs.

Apple would have been affected by the proposed tariffs, which were set to add 15% to the price of some of its most popular products, including the iPhone. With the good news, then, the market responded in kind.

Reasons to Remain Bullish

Apple’s relentless upward trajectory is not about to stop anytime soon, either, according to Merrill Lynch’s Wamsi Mohan. The 4-star analyst notes a list of reasons as to why he remains bullish on the world’s biggest company by market cap. Amongst them, the 4-star analyst thinks that valuation remains inexpensive, and that the brand has a loyal user base with a “continued strong demand for iPhones.” Mohan adds that an “attractively priced wearables portfolio… demographic changes in Apple’s favor and strong FCF and capital returns,” all indicate room for expansion.

5G Adoption

The upcoming integration of 5G could drive strong growth according to Mohan. He expects Apple to “launch at least one model of the iPhone in the fall of 2020 with 5G capability” and thinks 20 million 5G iPhones will be shipped in C20 (calendar 2020), an increase from the previous forecast of 10 million. On top of this, 10% penetration is forecasted for C2020E, growing to 70% penetration by C2024E. The analyst also thinks the 5G launch will be a catalyst for more consistent sales over the next 3 years, estimating sales will reach over 200 million each year between C20-C22.

Mohan rounds off by noting, “Multi-year iPhone visibility and stability, combined with continued double-digit Services revenue growth, should drive the multiple higher… We believe a multiple at the high end of the historical range is justified given a large cash balance and opportunity to diversify into new end markets, increasing mix and diversity of services, and a cyclically low point in iPhone sales.”

In Conclusion

All the good news caused the Merrill Lynch analyst to reiterate a Buy rating on Apple and bump up the price target from $270 to $290. This implies further upside of 4%, and consequently, a new all-time high. (To watch Mohan’s track record, click here)

Is Mohan’s bullish stance justified or has Apple peaked for now? With the tech giant riding high at the turn of the decade, not all on the Street are convinced of its ability stride further ahead. Apple currently ranks as a Moderate Buy, with a breakdown of 20 Buys, 10 Holds and 3 Sells from analysts tracked over the last 3 months. The average price target is $263.52, indicating downside of 6%. While it’s unlikely that the majority of analysts think Apple is set on a downward spiral, it is not inconceivable to think the stock has soared high enough for some right now. On the other hand, we might see some analysts revising their models on Apple’s future growth prospects shortly. (See Apple stock analysis on TipRanks)

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