Jefferies: Buy Apple stock for ‘massive’ services potential built on ‘stable iPhone business’

“Jefferies initiated coverage of Apple’s stock with a buy rating on Monday, estimating the tech giant can build ‘a massive’ services business on its core iPhone business,” Michael Sheetz reports for CNBC. “‘We believe AAPL’s stable iPhone business will serve as the foundation upon which it can build a massive, recurring and high margin Services business,’ Jefferies analyst Timothy O’Shea said in a note.”

“O’Shea said the firm believes the services business could make up 25 percent of Apple’s revenue by fiscal year 2020, as well as 40 percent of the company’s gross profit,” Sheetz reports. “‘Applying a higher multiple compared to the lower margin hardware business, we see a significant opportunity for investors as Services alone could be worth $111 to $177 per share by that time,’ O’Shea said.”

Read more in the full article here.

MacDailyNews Take: Jeffries’ O’Shea gets it.

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    1. For years Analysts so hooked up and addicted to iPhone sales, who can’t let go of it. Apple has diverged to service segments for a while but they can’t shake up that mentality of Apple is iPhone and iPhone is Apple. Hope somedays they wake up and smell the coffee. Voila.

  1. Very few big investors are going to fall for this headline. iPhone sales have finally hit a huge wall and Apple has no place to go with their smartphones. All the BRIC nation consumers are buying nothing but cheaper Android smartphones which they reason to be good enough. Consumers in India aren’t going to be drooling over some A12 Bionic SoC when they can get a $100 Android smartphone to run some app like WeChat like a champ.

    Apple shareholders are totally screwed as big investors’ only metric is how many iPhone units have been sold every quarter. iPhone sales growth is all that matters to them. Now all the big investors believe Apple is hiding sales from a failing iPhone business. Very few big investors think the way Warren Buffett does. I see no reason why Apple can’t increase revenue and profits in other ways than selling iPhones. It certainly is possible if Apple makes some key acquisitions.

    Sure, I’m pissed because the FANG stocks continue to outperform Apple in share gains and fat P/Es, but I’m not worried about Apple finding a way to make more revenue and profits and I’m happy with Apple’s quarterly dividends. With this current share drop, Apple can decrease the share count with buybacks and Buffett can own a bit more of Apple. It works for me.

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