Apple Inc. (NASDAQ: AAPL) Stocks rebound from weakness seen at the end of last week following reports of weaker demand for the iPhone. Despite the rich valuation stocks have racked up this year, they’re still a buy, according to a KeyBanc Capital Markets analyst.
Apple analyst: Brandon Nispel started hedging Apple stocks with an overweight rating and a price target of $ 191.
The Apple thesis: Apple’s iPhone sales have not peaked, with a short-term 5G upgrade cycle potentially pushing Apple past its peak, analyst Nispel said in a note. The company is not too reliant on the iPhone as the product line has grown, he added.
The analyst expects services to grow at rates several times faster than user growth, ultimately resulting in higher gross margins thanks to the revenue mix. That, the analyst said, despite concerns about Apple and App Store regulations.
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Apple will have 1.09 billion active installed iPhones and 1.8 billion active installed devices by the end of the first quarter of fiscal 2022, estimates Nispel.
“For us, this is AAPL’s user base, which is one of the largest in the world, where a large and growing user base and new products and services provide a solid foundation for the growth, âthe analyst said in the note.
While the company is likely to make a healthy investment in the business, it will likely allocate more than 100% of its free cash flow to shareholders in the form of around $ 300 billion in dividends and share buybacks over the years. next three years, offering attractive returns to shareholders, the analyst said.
KeyBanc estimates fiscal 2022 revenue, gross margin, Adjusted EBITDA and FCF at $ 386.3 billion, 42.5%, $ 135.9 billion and $ 106.1 billion, respectively, all measurements being greater than consensus.
âWhile AAPL is expensive relative to historical valuations, we find AAPL attractive relative to other mega-caps given AAPL’s superior ROIC characteristics,â the company said.
AAPL is trading at 18.5 times the company’s 2023 EBITDA estimates compared to the âBig Techâ peer group average of 15.3 times. Apple’s weaker growth relative to its competitors is offset by a high ROIC and justifies an above-average valuation multiple, the company said.
AAPL price action: Apple shares gained 2.15% on Monday, closing at $ 165.32.
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