Rob Cihra, formerly of Evercore ISI, after taking up a new post at Sterne Agee CRT, today initiates coverage, including Buy ratings on Apple (AAPL) and Neutral ratings on BlackBerry (BBRY), Fitbit (FIT), and Garmin (GRMN), among others.
Tiernan Ray reports for Barron’s, “For Apple, upon which he bestows a $150 target, he advises investors not to shy away because of ‘tough comps’ for the iPhone: ‘We estimate iPhones accounting for 66% and 72% of Apple’s revenue and gross profit in FY15, clearly its most critical product. With Apple’s installed base starved for larger screens, last year’s iPhone 6 has driven a massive upgrade cycle that re-accelerated unit growth +36%Y/Y over the past 4 qtrs. That’s unsustainable and now makes for tough comps starting in this Dec-qtr, when we estimate iPhones up just +3%Y/Y to 77mil (albeit better than market fears of down Y/Y). But we estimate still less than 50% of the iPhone installed base will have upgraded to larger than 4-inch screens exiting CY15, leaving more runway for iPhones to still grow +5%Y/Y in FY16 even off tough comps, boosted by the 6s and $100 price-cut on last year’s models.'”
“For FitBit, which he also assigns a $45 target,” Ray reports, “the stock looks too rich given it hasn’t yet won the war in wearables.”
Read more in the full article here.
MacDailyNews Take: “Hasn’t yet,” as in “will never.”
I’d rather have a device like the iPhone be responsible for the majority of my company’s profits with a handful of other products which are also highly profitable but at a smaller scale than be a company making next to no profit (at best) but spread evenly over loads of equally shitty products.
As a shareholder and as an iPhone user, I’d rather NOT have the iPhone make up most of Apple’s profits. There’s little room for error and risk-taking if it’s your #1 selling product making up most of your margins. You can’t take a risk on a new innovation as easily when one mistake could mean 70% of your profits suffer.
Apple can’t really try anything new with the iPhone. It has to be conservative because the iPhone makes up the VAST majority of its profits. I want to see a more even distribution among its product line. If iPhone has a bad year… or something like AntennaGate… there’s no safety net.
First, Apple has let iPhone profits force it into a conservative mindset. Apple regularly adds new technologies to the iPhone. That is one reason why it is so successful.
Second, you cannot just arbitrarily even out the distribution of profits generated by a company’s product lines. The iPhone has the advantage of being a type of device (smartphone) that is owned by billions of people, has a relatively high ASP, and is regularly upgraded. That does not apply to a lot of products. Thus, the iPhone generates the majority of Apple’s revenues and profits.
If other products come along that boost Apple’s revenue base and spread the profits more evenly, then great. But the iPhone is a wonderful “problem” to have. I am amazed at how many people try to turn it into a negative.
Correction: First, Apple has *not* let iPhone profits force it into a conservative mindset.
It’s definitely not a negative, but like you mentioned, it is a PROBLEM from perspective of Wall Street. People look in bewilderment at why AAPL gets punished with iPhone news.
It’s because Wall Street HATES uncertainty. They LOVE stability… and predictability… how else can you make money off the stock market?
If, for some reason, the iPhone falls out of favor, profits are greatly affected. Most of Apple’s egg is in one basket. Sure it’s a golden-lined egg, and a golden-weaved basket, but Apple is forced into being conservative because of it.
Apple still pushes the limits, but with the iPhone… they can’t afford to go too extreme. Notice that Force Touch was introduced on the Apple Watch first.
Sure, there are several reasons for this, but one of the reasons is that, if Apple overlooked something with it, and on a mass scale, it just doesn’t seem to work… it only affects a smaller product line.
What about the Apple Pencil? Is there any good reason it doesn’t work on the iPhone? Putting aside the logic of a pencil and an iPhone, other than giving a compelling reason to upgrade to the iPhone 7, it’s very cautious as to what features its flagship profit cow gets.
I wouldn’t be surprised to see the home button disappear on iPads before the iPhone. Experimental technology.
I know Apple’s focus isn’t on the share price, but large stock price declines affect people’s perception of the company’s products. And anything that affects the people’s perceptions of the products IS Apple’s focus.
You fail as an analyst by not looking objectively at history
as far as being a shareholder, so far so good, i will ride the dragon onward,
bought when aapl was 4.67 split adjusted, and have no qualms relaxing with their strategy, make the best and those willing to pay for the best will continue to enjoy their amazing stuff
they “tried something new” with all of their stuff, and each time it gave them legs, if what your fear tells you is true, then the iPhone was “trying something new” with the iPod, and it cannabalized the iPod, SO WHAT! i say keep trying Apple! newer the better,
AntennaGate was a blip, and any other fake noise will be too
stop the fear, uncertainty and doubt, and hold aapl
I am explaining why Wall Street doesn’t like Apple. It’s why AAPL is so volatile and is considered risky. Sure, there are rewards along with risk, but it’s not a well diversified company…
Don’t get me wrong, it’s been a great stock to own, but more and more of its profit relies on one product.
Never said Apple can’t fall from grace. Things like the VW issues weren’t expected, either. Even the largest companies can fall, either from their own doing, or external factors.
The sooner Apple can diversify their profits into iPads and cars and other services, the faster the stock will rise. Right now, on paper… there is too much risk.
It’s easy to look back at Apple and see what a great stock it HAS been, but only a fool looks at a stock’s history to predict its future.
Surprisingly the stock trades very poorly on up market days and miserably on down/sell off market days – I’m curious as to the constant pressure on the stock – something smells fishy, especially after two great consecutive quarters and 24+ B of free cash flow – the three year return/chart is miserable unfortunately ??
One of the first things I learned is that a good company is not necessarily a good stock. That said, I have no idea what will happen to Apple stock. Nor does anybody else.