Apple Inc. (AAPL): Is It Time to Throw the White Towel?

GBH Insights' analyst Daniel Ives sees all the reasons to feel frustrated with Apple's recent challenges- but likes the risk/reward all the same.

As Apple Inc. (NASDAQ:AAPL) prepares to host its yearly shareholder conference at the Steve Jobs Theater tomorrow in Cupertino, investor anticipation is glued to see what the tech titan has in store for its direction this year.

GBH Insights analyst Daniel Ives acknowledges that the recent months have not been Apple’s brightest, with iPhone X weak demand fears running wild through the Street.

In other words, Ives sees this meeting hitting “at a crucial time” for the company. Other challenges Ives spotlights include a stalled HomePod launch- where the tech titan lost out on a valuable prime time holiday season release. For this reason, shares have been in a bind. So far, the new year has just led to real unease among tech investors in terms of the big Apple’s name, writes Ives.

However, Ives holds tight to the bullish camp, not counting the tech king out- not by a long shot: “While many have thrown in the white towel on the name, we continue to believe the compelling valuation […] massive cash outlay on the horizon for investors, and three pronged (2 OLED devices, 1 LCD) iPhone product cycle slated for the next 9 months that will help capture the 350 million iPhones in the window of an upgrade opportunity, gives us high conviction in owning this name during this period of turbulence as we see the forest through the trees on Apple.”

As such, the analyst reiterates a Highly Attractive rating on AAPL stock with a $205 price target, which implies a 29% upside from current levels. (To watch Ives’ track record, click here)

First, Ives highlights a monster upturn in average selling prices (ASPs) for the company, to the tune of roughly $800 following an iPhone X launch that has proved to be a modest success, even amid demand concerns. Second, the analyst points out confidence in the company’s services potential, a business that Ives wagers is tracking to earn $50 billion in yearly revenue by fiscal 2020. Third, Ives gives kudos to a consumer franchise that stands tall at 1.3 billion active devices across the globe, daring to say it is “unparalleled.” One thing is clear to the analyst: this “speaks to the clear tailwinds that Cook & Co. has for the foreseeable future in our opinion as it further penetrates its massive installed base.”

“That said, Apple continues to transition from a growth to value name as the company’s massive war chest and $200 billion+ of repatriated cash is now front and center for the Street as investors hope to get some further tea leaves on Apple’s cash strategy/timing as well as product vision for 2018 at this week’s highly anticipated shareholder meeting,” Ives contends.

With a $300 billion buyback program waiting in the winds, a cash dividend boost between 10% and 15%, along with $15 billion in a special cash dividend that could hit in April, Ives says the sole “wild card” remaining is M&A. Will Apple bolster its video streaming service in the “content arms race” firing up this year?

Bottom line, Ives bets on the company’s robust “fundamental picture” for the next year to year and a half, pinpointing compelling risk/reward here- and “massive capital return” opportunities ahead for investors.

TipRanks showcases mostly positive sentiment on the Street when it comes to the big Apple’s market prospects. Out of 30 analysts polled in the last 3 months, 18 are bullish on the tech titan and 12 play it safe on the sidelines. With a return potential of 23%, the stock’s consensus target price stands at $192.52.

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